DP2384 | Optimal Speed of Transition 10 Years After

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29/02/2000

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Abstract

The adjustment of labour markets during transition has been quite different from that anticipated by the Optimal Speed of Transition (OST) literature. In particular, it has involved stagnant unemployment pools, large flows to inactivity and strikingly low workers' mobility especially when account is made of the changes occurring in the structure of employment by sector, occupation and ownership of firms. Furthermore the policy trade-offs embedded in the OST literature relate mainly to the alternative between a big-bang strategy and a gradual transition process. This amounts to assuming that governments can control the pace of closure of state enterprises. However, the facts discussed in this paper suggest that separations from state sector employment were, ultimately, an endogenous variable rather than a policy instrument, as they were to a large extent the by-product of voluntary choices of workers.