1. Dealing with jobless growth and poverty in SEE Tito Boeri Università Bocconi and Fondazione Rodolfo Debenedetti Conference on Labor Markets Growth and Poverty Reduction Strategies World Bank June 27, 2005
Piece of applied economic research, which addresses a question that is in our view relevant from a policy perspective
Barriers to migration of labour and other persons will be eliminated in the course of Eastern Enlargement
Countries can use transitional periods up to a maximum of seven years
However, political decision makers face high uncertainty on the consequences of free movement for two reasons:
the income gap is larger than in past accession rounds;
present migration stocks from the CEE countries are fairly low relative to the high income gap.

2. Outline Output and Employment Developments in the CEEs and SEEs
Recent strong recovery …
but jobless growth
Profiles of Inequality and Long-term Unemployment
Strategies reconciling social protection with a higher (formal) job content of growth.

3. A fast growth area in Europe…

4. …but since 1997 with low job content (at least formal jobs)
Pre 1997
Post 1997
employment growth
gdp growth
Fitted values
-12 -6 3 6
LIT
EST
BUL
ROM
CZE
HUN
SLO
POL
LAT
SLK
employment growth
gdp growth
Fitted values
-12 -6 3 6
ROM
LIT
CZE
EST
POL
SLK
SLO
BUL
HUN
LAT

5. Jobless Growth

6. Outline Inequality and Long-term Unemployment
Output and Employment Developments in the SEEs
Recent strong recovery …
but jobless growth
Inequality and Long-term Unemployment
Strategies reconciling social protection with a higher (formal) job content of growth.

7. Non-employment and Inequality

8. Gini coefficients AL BH SR PT EE LV LT SK PL MA CY CZ HU SI 20 22 2426 28 30 32 34 36 38
1994
1995
1996
1997
1998
1999
2000
2002
2003 PT GR ES UK IR IT
EU15
FR LU NL DE DK SE SF AT BE
PL MA CY CZ HU SI EE LV LT SK AL BH SR

9. SEE Risk of Poverty Rate 2000 SK MT PL CY LT EE LV5 10 15 20 25 SE DK SF DE NL LU AT BE FR
EU15 UK IT ES PT EL IR
% below 60% median in Member State
CZ SI
MT PL CY LT EE LV SK
SEE

11. Stagnant unemployment pools (incidence of LTU)
SEE

12. Long term unemployment by age
2000
2001
2002
2003
2004
EU15
26.1
26.9
25.1
Czech Republic
38.2
38.6
33.5
30.9
37.1
Hungary
37.2
35.3
35.7
33.8
34.2
Poland
35.2
40.9
47.4
45.9
43.9
Slovenia
46.9
44.1
52.9
45.1
Slovakia
43.7
48.9
53.9
55.4
53.1
Bulgaria
52.1 51
54.7
54.4
46.7
Croatia
16.2
15.4
Romania
39.4
36.3
48.4
51.1
46.4
2000
2001
2002
2003
2004
EU15
49.9
51.6
52.1
Czech Republic
57.4
59.1
60.5
57.9
Hungary
52.8
50.5
51.5
47.3
51.3
Poland
50.6
56.7
60.7
61.6
61.3
Slovenia
78.4
77.4
69.9
64.4
64.2
Slovakia
60.8
65.1
69.3
71.5
69.5
Bulgaria 60
66.9
71.2
71.4
61.2
Croatia
20.7
22.3
Romania
53.6
66.3
68.2
65.7

13. Unemployment and the unskilled
15 – 24
2000
2001
2002
2003
2004
EU15
19.5
17.7
18.2
19.6
21.5
Czech Republic
44.2
41.1
40.6
48.7
53.8
Hungary
21.3
19.3 21
26.4
25.6
Poland 37
38.2
43.2
38.7
41.6
Slovenia
26.2
25.2
25.8
26.1 18
Slovakia
77.2
80.3
75.1
69.6
73.7
Bulgaria
44.7
59.5
51.9
41.4
37.5
Croatia
34.1
42.2
Romania
11.6
12.1
15.3
20.9
40 – 64
2000
2001
2002
2003
2004
EU15
8.7
7.3
7.8
8.1
Czech Republic
16.6 15
14.7
15.8
19.2
Hungary
8.4 8
8.5
Poland
17.2 19
21.6
21.4 23
Slovenia
6.7
5.8
9.3
Slovakia
31.4
32.3
36.2
37.6
43.1
Bulgaria 20
26.6
24.1
20.9
16.9
Croatia
10.2
10.9
Romania
2.7
2.8
4.2
3.5
4.6

14. SEE
Need of better data on unemployment duration and characteristics of jobseekers. Also surveys eliciting holding of jobs in the informal sector (ex. EGB Brazilian survey).
Lower educational attainments than in CEEs and emigration with brain drain.
Poverty and unemployment strictly related with educational attainments.

15. Summarising
Jobless growth in the CEEs associated with widening income inequalities
Not yet in the SEEs; lower relative (but larger absolute) poverty rates than in CEEs
Unemployment strongly correlated with poverty, but also working poor increasing in SEE. Even more so with widening wage inequality.

16. Summarising (/…)
Stagnant unemployment pools are building up, involving mainly older workers and the unskilled; but also youth unemployment can be long-term
Jobless growth in the SEEs likely to be due to reduction labour hoarding, mismatch, shadow economy, pivotal role of public sector wages.

17. Outline Output and Employment Developments in the SEEs
Recent strong recovery …
but jobless growth
Profiles of Inequality and Long-term Unemployment
Strategies reconciling social protection with a higher (formal) job content of growth.

18. Caveat Problems mainly on the demand side
Improve environment in which firms operate (corruption, crime, judiciary, regulations)
On the supply side, important to invest in increasing enrolment rates. Investment will also be repaid in terms of a larger tax base. Higher education means a smaller shadow economy

22. Dealing with shadow economies
Repression (tighter controls) by itself may end up increasing even further unemployment.
Increase controls together with:
lower labour costs (higher net wages) for low productivity jobs
enforce entitlement rules to unemployment benefits (cum health ins.)

23. Acting on labour costs Two strategies:
Employment-conditional incentives (ECI) (at low wages)
Wage subsidies (WS) or social security reductions for low-wage jobs
WS better than ECI insofar as low wage dispersion at the low-end

24. Employment Conditional Incentives

25. Entitlement Effects
Less incentives to be in the shadow sector if it does not provide entitlement to unemployment (health) insurance
Need to enforce entitlement rule also by applying activation strategies
Job search assistance and tests
Job counselling
Controls and sanctions

26. Activation strategies
Mixed results from evaluation literature, but generally effective
Job search and work test at earlier stages of unemployment spell.
Importance of the definition of a suitable job offer (how many hours a day of commuting should be tolerated?)
Need of quickly enforceable sanctions

27. Final Remarks
Many problems not strictly related to labour market policy (education, business environment)
Good policies require good data
Income support to the unemployed and to working poor can be reconciled with more jobs by expanding the tax-base
Muscular approach to shadow economy would not work
Better wage subsidies to low-paid jobs together with activation policies enforcing entitlement to unemployment insurance