Can we really explain worker flows in transition?

Can we really explain worker flows in transition economies?

Can we really explain worker flows in transitioneconomies?

Evidence from the Life in Transition Survey

Joanna TyrowiczLucas van der Velde

GRAPEGroup for Research in APplied Economics

February 2015,41st EEA, New York

Table of contents

1 Stories of reallocation

2 Hypotheses

3 Data and methods

4 Results

5 Conclusions

Introduction

Motivation

Analyses so far is highly selective - few countries, few periods

Lack of a solid, complete theoretical basis.

Transition theories better than universal labor market theories?When is transition over?

Our goal: to understand better worker flows in transition economies

Advantage: new, comprehensive retrospective data: Life inTransition Survey (EBRD)

Introduction

Motivation

Introduction

Motivation

Introduction

Motivation

Introduction

Motivation

Introduction

Motivation

Very selective choice of countries analyzed

Table: Countries analysed by previous literature

Year N 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

Estonia 2

Russia 2

Ukraine 3

Bulgaria 1

Poland 3

Romania 1

Slovenia 2

Slovak 1

Note: Ticks indicate that the countryperiod was analysed in the literature. Papers were searchedfor in the EconLit database with keywords: ‘reallocation’; ‘transition’ ‘job creation’ ‘jobdestruction’

Stories of reallocation

Aghion and Blanchard (1994) - optimal speed of transition

Inefficient (public sector) jobs collapse

State can subsidize firms (postpone collapse) or redundant workers(with safety nets)

Taxes make creating jobs costly, desynchronizing JD & JC

Limits

Simplifications concerning the role of sectoral reallocationSimplification of the dynamics of the two sectorsWorkers homogeneous: no demographics or changes in education -inconsistent with empirical evidence Jurajda and Terrell (2003);Schaffner (2011); Turunen (2004)

Extensions: International migration (Bruno, 2006); heterogeneousworkers (Boeri, 2000; Balla et al., 2008); job-to-job flows (Tichit,2006)

Limits

Simplifications concerning the role of sectoral reallocation

Simplification of the dynamics of the two sectorsWorkers homogeneous: no demographics or changes in education -inconsistent with empirical evidence Jurajda and Terrell (2003);Schaffner (2011); Turunen (2004)

Limits

Simplifications concerning the role of sectoral reallocationSimplification of the dynamics of the two sectors

Workers homogeneous: no demographics or changes in education -inconsistent with empirical evidence Jurajda and Terrell (2003);Schaffner (2011); Turunen (2004)

Limits

Caballero & Hammour (several papers)

Main concept: appropriability

Endogenous job creation and destruction based on capital specificityand incomplete contracts.

Limits

No treatment of public sector / taxes / subsidiesWorkers homogeneous: no demographics or changes in education -inconsistent with empirical evidence (Jurajda and Terrell, 2003;Schaffner, 2011; Turunen, 2004)Sectoral changes increase productivity, which is not always true(Dimova, 2008; Orazem and Vodopivec, 2009)

Limits

No treatment of public sector / taxes / subsidies

Workers homogeneous: no demographics or changes in education -inconsistent with empirical evidence (Jurajda and Terrell, 2003;Schaffner, 2011; Turunen, 2004)Sectoral changes increase productivity, which is not always true(Dimova, 2008; Orazem and Vodopivec, 2009)

Limits

No treatment of public sector / taxes / subsidiesWorkers homogeneous: no demographics or changes in education -inconsistent with empirical evidence (Jurajda and Terrell, 2003;Schaffner, 2011; Turunen, 2004)

Sectoral changes increase productivity, which is not always true(Dimova, 2008; Orazem and Vodopivec, 2009)

Limits

Common limitations in applying these theories to the data

Data limitations on controlling for gross (individual level) and net(firm level) flows

The different role of worker flows (reallocations) vs job flows(privatizations)

Privatized vs new (de novo) firms – all private equal?

What if a worker holds more than a one job during the transitionperiod? Which transition do we capture?

Hypotheses

Our statements to be tested

1 Flows during transition were generally not AB or CH

2 Demographic changes (youth entries and elderly exits) explain mostof 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 bedriving the processes, demographics do

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 2006 edition. Sample covers years from 1989 to2006.Limitations: missing variables (e.g. wages, firm size), identificationof flows (privatized vs de novo), recall bias.

Other sources

ILO Stat and Fondazione: Wages and EPLEBRD: Transition measures.World Bank: GDP per capita.Penn tables: Labour share in GDP, Employment to population ratio.

Data and methods

LiTS and other data sources

Country YearServices Industry Private Services Industry Private(LFS) (LFS) (SES) (LiTS) (LiTS) (LiTS)

Bulgaria2000 51.8 39.6 57.2 36.0 48.72002 54.9 38.3 55.9 60.0 34.4 53.5

Estonia1997 53.1 33.1 58.4 30.6 52.72002 56.0 32.9 91.8 59.8 30.9 62.2

Latvia1998 47.4 30.1 67.1 23.6 51.22002 49.0 27.7 88.0 67.1 24.4 59.7

Poland2000 46.1 40.1 59.6 34.6 50.02002 51.5 37.8 47.1 59.0 34.3 53.4

Romania1997 48.4 22.8 54.1 39.7 44.22002 58.0 24.7 65.3 58.8 36.1 54.8

Slovakia1998 50.2 29.2 62.6 30.1 39.72002 52.7 27.7 63.0 65.6 28.6 45.9

Note: Own calculation on the basis of data from LiTS, the EU-Labour Force Surveys (LFS) andthe Structure of Earnings Survey (SES).

Data and methods

Definitions

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

Data and methods

Definitions

EXIT: To retirement

Data and methods

Definitions

EXIT: To retirement

Data and methods

Definitions

EXIT: To retirement

Data and methods

Definitions

EXIT: To retirement

Data and methods

Definitions

EXIT: To retirement

Data and methods

Definitions

EXIT: To retirement

Results

1 Flows are generally not AB or CH

2 Demographic changes (new entries and early exits) explain most ofthe reallocation

Results

H1: which flows dominate? How much the models explain?

Figure: Relative importance of different flows (averages over time)

0 .2 .4 .6 .8 1

AZEARMTJK

GEOMKDBIH

MNEKGZALB

MDASRBSVKBLRHRVUZBSVNPOLLTUUKRROMBGRKAZCZEESTRUSHUNLVA

AB CH SAME ABCH

NONE To retirement From school

Results

One speed of transition? + job-to-job flows dominate!

Figure: Evolution over time (averages over) countries)0

1990 1995 2000 2005

ABCHSAME

Results

H2: which flows 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 YesCountry dummies Yes Yes YesYear dummies Yes Yes Yes

Number of id 15,131 9,968 13,107R2 between 0.825 0.276 0.641R2 within 0.834 0.314 0.641

Notes: Panel linear probability models (RE). Robust standard errors used but not reported.Asterisks denote 1 % confidence levels

Results

H3: which flows explain unemployment (better)?

Table: Link between unemployment rates and flows

AB CH SAME ABCH NONE EXIT ENTRY

flow 2 0.057*** 0.089 0.009 0.220* 0.026 0.006 0.037*flow -0.789*** -0.688 -0.533*** -1.067** -0.595* -0.060 -0.762***N 486 486 486 486 486 486 486R2 0.888 0.885 0.890 0.886 0.886 0.885 0.889

Notes: In all cases the dependent variable was detrended Unemployment Rate. The independentvariables are the total number of flows of each type in each country.

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 -0.601Public 0.472*** 0.346** 2.917***De novo 0.049 -0.001 0.486Manufacturing 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 -0.143Personal characteristics Yes Yes YesAIC 39362.182 6618.8377 8937.4545BIC 39517.767 6774.4224 9093.0392

Notes: Estimates from a proportional hazard Cox model with country specific baseline hazardratios.

Conclusions

Summarizing

1 AB and CH movements are the smaller part of transiton

2 school-to-work transition very important for successufl transformation

3 while some of the correlations predicted by the theories hold, but thetransmission mechanisms should be reconsidered

Conclusions

Questions or suggestions?

Thank you for your attention!

Conclusions

Questions or suggestions?

Thank you for your attention!

References

Aghion, P., Blanchard, O. J., 1994. On the speed of transition in centraleurope, 283–330.

Balla, K., Kollo, J., Simonovits, A., 2008. Transition with heterogeneouslabor. Structural Change and Economic Dynamics 19 (3), 203–220.

Boeri, T., 2000. Structural Change, Welfare Systems, and LabourReallocation: Lessons from the Transition of Formerly PlannedEconomies. Oxford University Press.

Bruno, R. L., 2006. Optimal speed of transition under shrinking laborforce and uncertainty. Economics of Transition 14 (1), 69–100.

Dimova, R., 2008. The impact of labour reallocation and competitivepressure on tfp growth: firm-level evidence from crisis and transitionridden bulgaria. International Review of Applied Economics 22 (3),321–338.

Jurajda, S., Terrell, K., 2003. Job growth in early transition: Comparingtwo paths. Economics of Transition 11 (2), 291–320.

Orazem, P. F., Vodopivec, M., 2009. Do Market Pressures InduceEconomic Efficiency? The Case of Slovenian Manufacturing,1994-2001. Southern Economic Journal 76 (2), 553–576.

Schaffner, S., 2011. Heterogeneity in the cyclical sensitivity of job-to-jobflows. Zeitschrift fur ArbeitsmarktForschung 43 (4), 263–275.

Conclusions

Tichit, A., 2006. The optimal speed of transition revisited. EuropeanJournal of Political Economy 22 (2), 349 – 369.

Turunen, J., 2004. Leaving state sector employment in russia. Economicsof Transition 12 (1), 129–152.

Can we really explain worker flows in transition?

Economy & Finance

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