We test the validity of Aghion & Blanchard (1994) as well as Caballero & Hammour (1996, 2001) in the context of 26 transition economies over the period 1989-2006. We find that demographics and education can accommodate a fair share of shift from public to private and from manufacturing to services -- as opposed to the actual worker flows between jobs. Whether or not this results in reduced employment at the end of the transition process stems not from the wage setting mechanism (such as collective bargaining, indexation, etc.) but rather seems to be related to the policies able to keep older cohorts in employment.

1. Can we really explain worker
ows in transition economies?
Can we really explain worker
ows in transition
economies?
Evidence from the Life in Transition Survey
Joanna Tyrowicz
Lucas van der Velde
GRAPE
Group for Research in APplied Economics
September 4th, 2014,
EACES Biennal Conference in Budapest

2. Can we really explain worker
ows in transition economies?
Table of contents
1 Introduction
2 Theories of reallocation
3 Hypotheses
4 Data and methods
5 Results
6 Conclusions

3. Can we really explain worker
ows in transition economies?
Introduction
Introduction
Motivation
Analyses of transition economies highly selective - few countries, few
periods
Theories on transition focus on worker
ow from public to private de
novo - no treatment of manufacturing) services and demographics
Theories of sectoral reallocation disregard transition processes
Our goal: to understand better worker
ows in transition economies
Advantage: new, comprehensive retrospective data: Life in
Transition Survey (EBRD)

4. Can we really explain worker
ows in transition economies?
Theories of reallocation
Aghion & Blanchard (1994) - optimal speed of transition
Inecient (public sector) jobs collapse
State can subsidize

5. rms (postpone collapse) or redundant workers
(with safety nets)
Taxes raised to

6. nance this make creating jobs costly,
desynchronizing JD JC
) Simple link between U, JC and pace of privatization, state can
alleviate social costs of transition by choosing the adequate pace of
job destruction in the public sector
Limits
Simpli

7. cations concerning the role of sectoral reallocation
Workers homogenous: no demographics or changes in education -
inconsistent with empirical evidence Jurajda and Terrell (2003);
Schaner (2011); Turunen (2004)

8. Can we really explain worker
ows in transition economies?
Theories of reallocation
Caballero Hammour (several papers)
Main concept: appropriability
Endogenous job creation and destruction based on capital speci

9. city
and incomplete contracts.
) Used to explain reallocation and technological change in
advanced economies.
Limits
No treatment of public sector / taxes / subsidies
Workers homogenous: no demographics or changes in education -
inconsistent with empirical evidence Jurajda and Terrell (2003);
Schaner (2011); Turunen (2004)

10. Can we really explain worker
ows in transition economies?
Theories of reallocation
Common limitations in applying these theories to the data
Data limitations on controlling for gross and net
ows
The dierent role of worker
ows (reallocations) vs job
ows
(privatizations)
Privatized vs new (de novo)

11. rms { all private equal?
What if a worker holds more than a one job during the transition
period? Which transition do we capture?

12. Can we really explain worker
ows in transition economies?
Hypotheses
Our statements to be tested
1 Flows are generally not AB or CH
2 Demographics explains most of the reallocation
3 AB explains unemployment better than CH in transition countries,
but they both poorly explain employment
4 Channels of mediation suggested by AB and CH do not seem to be
driving the processes, demographics do

13. Can we really explain worker
ows in transition economies?
Data and methods
Data sources
Life in transition Survey - 27 transition countries, 18 years
Homogeneous survey compiled by the EBRD in 2006 and 2010.
Life history in the

14. rst of them ) re
ect aggregate data fairly well
Limitations: missing variables, identi

15. cation of
ows.
Other sources
ILO Stat and Fondazione: Wages and EPL
EBRD: Transition measures.
World Bank: GDP per capita.
Penn tables: Labour share in GDP, Employment to population ratio.

16. Can we really explain worker
ows in transition economies?
Data and methods
Overall labor market trends
Figure : Changes in the labor market composition
.4 .45 .5 .55 .6 .65
Female
1990 1995 2000 2005
30 35 40 45
Age
1990 1995 2000 2005
.1 .2 .3 .4 .5 .6
High Ed.
1990 1995 2000 2005
0 .2 .4 .6 .8
Private
1990 1995 2000 2005

17. Can we really explain worker
ows in transition economies?
Results
De

18. nitions
AB: public ) private sector (within the same industry)
CH: manufacturing ) services (within the same sector)
ABCH: public manufacturing ) private services
NONE: private service ) public manufacturing
SAME: within sector and industry
EXIT: To retirement
ENTRY: Into employment

19. Can we really explain worker
ows in transition economies?
Results
H1: which
ows dominate? How much the models explain?
Figure : Relative importance of dierent
ows
0 .2 .4 .6 .8 1
LVA
HUN
RUS
EST
CZE
KAZ
BGR
ROM
UKR
LTU
POL
SVN
UZB
HRV
BLR
SVK
SRB
MDA
ALB
KGZ
MNE
BIH
MKD
GEO
TJK
ARM
AZE
AB CH SAME ABCH
NONE To retirement From school

20. Can we really explain worker
ows in transition economies?
Results
One speed of transition? + job-to-job
ows dominate!
Figure : Evolution of dierent
ows
0 2 4 6
1990 1995 2000 2005
AB
CH
ABCH
SAME
NONE

21. Can we really explain worker
ows in transition economies?
Results
H2: which
ows explain employment?
Table : Movements to employment
N) E U) E E) E
AB 0.968*** 0.868*** 0.917***
CH 0.649*** 0.662*** 0.594***
ABCH -0.623*** -0.592*** -0.531***
Same industry - Manufacturing 0.102*** 0.348*** 0.479***
Same sector - Public 0.883*** 0.882*** 0.916***
Same Sector - de novo 0.854*** 0.892***
Reincidence of unemployment -0.207*** -0.004***
Personal characteristics Yes Yes Yes
Country dummies Yes Yes Yes
Year dummies Yes Yes Yes
Number of id 15,131 9,968 13,107
R2 between 0.825 0.276 0.641
R2 within 0.834 0.314 0.641

22. Can we really explain worker
ows in transition economies?
Results
H3: which
ows explain unemployment (better)?
Table : Link between unemployment rates and
ows
AB CH SAME ABCH NONE EXIT ENTRY
ow2 0.057*** 0.089 0.009 0.220* 0.026 0.006 0.037*
ow -0.789*** -0.688 -0.533*** -1.067** -0.595* -0.060 -0.762***
N 486 486 486 486 486 486 486
R2 0.888 0.885 0.890 0.886 0.886 0.885 0.889

23. Can we really explain worker
ows in transition economies?
Results
H4: do the channels of mediation work?
Table : Durations models
VARIABLES TOTAL CH AB (de novo)
Unemployment rate 8.850*** 9.035*** 8.435***
Unemployment rate 2 -12.305*** -18.396*** -16.145***
Entry 3.727*** 8.737*** 6.219***
Exit 2.950 0.676 7.472**
ULC dynamics -0.062 0.878 -0.601
Public 0.472*** 0.346** 2.917***
De novo 0.049 -0.001 0.486
Manufacturing 0.455*** 0.190 0.522***
Construction 0.457*** 0.190 0.834***
Services 0.527*** -0.283* 0.756***
High skill jobs -0.340*** -0.210 -0.143
Personal characteristics Yes Yes Yes
AIC 39362.182 6618.8377 8937.4545
BIC 39517.767 6774.4224 9093.0392
Notes: Estimates from a proportional hazard Cox model with country speci

24. c baseline hazard
ratios.

25. Can we really explain worker
ows in transition economies?
Conclusions
Summarizing
1 The focus on AB and CH movements is not enough in transition
economies.
2 Demographic
ows were of great signi

26. cance and should be considered in
further analysis
3 Individual characteristics played an important role: winners and losers of
transition.
4 Unemployment rates have an impact on
ows, but the transmission
mechanisms should be reconsidered
What is next?:
Corroborate our

27. ndings with national data sources.
Deepen the analysis of the role of institutions on labor market transitions.
Develop an integrated ABCH model of transitions.

28. Can we really explain worker
ows in transition economies?
Conclusions
Questions or suggestions?
Thank you for your attention

29. Can we really explain worker
ows in transition economies?
Conclusions
Jurajda, S., Terrell, K., 2003. Job growth in early transition: Comparing
two paths. Economics of Transition 11 (2), 291{320.
Schaner, S., 2011. Heterogeneity in the cyclical sensitivity of job-to-job
ows. Zeitschrift fur ArbeitsmarktForschung 43 (4), 263{275.
Turunen, J., 2004. Leaving state sector employment in russia. Economics
of Transition 12 (1), 129{152.