Katherine Terrell

Institutional Determinants of Labor Reallocation in Transition

Studying the transition means analyzing the interactions between institutions and structural change, a process we still know very little about. In this paper we show that the transition process has been very different in the countries of the Former Soviet Union (FSU) and those of Central and Eastern Europe (CEE) in terms of reallocation of labor from the old to the new sector, the extent of real wage decline and responsiveness of employment to output changes. We sift through the theoretical and empirical literature to find an explanation for these diverging adjustment trajectories and conclude that the difference can be explained in part by different policy models. The CEE countries adopted social policies that upheld wages at the bottom of the distribution and hence forced the unproductive old sector to restructure or collapse. The FSU countries allowed wages to free fall and hence did not force the hand of the old sector. Why these two models were adopted is the subject for political-economy research, however we speculate that it has to do with the relative appeal of joining the EU.

Unemployment and the Social Safety Net During Transitions to a Market Economy: Evidence from the Czech and Slovak Republics

The authors investigate the remarkably short unemployment spells in the Czech Republic compared to Slovakia and other Central and East European economies. They estimate hazard functions and find that 40 to 5O percent of the difference in unemployment durations between the two republics is accounted for by differences in demographics and demand conditions. The remainder is explained by differences in coefficients, proxying the behavior of firms, individuals, and institutions. In both republics, the unemployment compensation system has a moderately negative effect on the exit rate from unemployment. Policymakers, hence, have latitude in providing adequate social safety nets without jeopardizing efficiency. Copyright 1998 by American Economic Association.

Job Growth in Early Transition: Comparing Two Paths

Small start-up firms are the engine of job creation in early transition. We ask about differences in their growth across two different transition economies: Estonia, which experienced rapid destruction of pre-existing firms, and the Czech Republic, which reduced the old sector gradually. We find that the majority of job growth corresponds to within-industry reallocation. The within-industry growth of small start-up firms is similar in the two countries, in line with the convergence to Western industry firm-size distributions. We also find similar patterns in the evolution of wage differentials between start-ups and old firms and small differences in the extent of low-wage employment in start-ups across the two transition paths.

The nature of minimum wages and their effectiveness as a wage floor in Costa Rica, 1976-1991

Abstract This study describes Costa Ricas complex minimum wage system and its evolution over 1976–1991, examines the trend in minimum wage to average wage in eight industries, and compares the number and characteristics of workers who earn below the minimum wage over these 16 years in the covered and uncovered sectors. We conclude that noncompliance is a major problem. On average one-third of the workers in the legally covered sector earn below the minimum wage over this period. Moreover, the same proportion earns below the minimum wage in the uncovered sectors. This evidence indicates that the law may fail its intent of assuring an adequate salary to workers without bargaining power.

Regional Unemployment and Human Capital in Transition Economies

Differences in regional unemployment in post-communist economies are large and persistent. We show that inherited variation in human-capital endowment across the regions of four such economies explains the bulk of regional unemployment variation there and we explore potential explanations for this outcome through related capital and labor mobility patterns. The evidence suggests that regions with high inherited skill endowments attract skilled workers as well as FDI. This mobility pattern, which helps explain the lack of convergence in regional unemployment rates, is consistent with the presence of complementarities in skill and capital. Nevertheless, we find no supporting evidence of human capital wage spillovers implied by the complementarities story. Unemployment of the least-skilled workers appears lower in areas with a higher share of college-educated labor and future research is needed to see if this finding as well as the observed migration pattern arise from different adjustments to regional shocks by education level brought about in part by Central European labor-market institutions, such as guaranteed welfare income raising effective minimum wages.

What Drives the Speed of Job Reallocation During Episodes of Massive Adjustment

This paper uses individual-level data to characterize economy-wide job creation and destruction during periods of massive structural adjustment. We contrast the gradualist Czech and the rapid Estonian approach to the destruction of the communist economy to provide evidence on selected macroeconomic theories of reallocation with frictions. We find that gradualism (slowing down job destruction) effectively synchronizes job creation and destruction. Drastic job destruction leads to little or no slowdown of job creation. Small newly established firms are the under-researched fountainhead of jobs during the transition from communist to market oriented economies.

Does Gender Matter for Firm Performance? Evidence from Eastern Europe and Central Asia

Using 2005 firm level data for 26 countries in Eastern and Central Europe, this paper estimates performance gaps between male and female-owned businesses, while controlling for location by industry and country. The findings show that female entrepreneurs have a significantly smaller scale of operations (as measured by sales revenues) and are less efficient in terms of total factor productivity, although the difference is small. However, women entrepreneurs generate the same amount of profit per unit of revenue as men. Although both male and female entrepreneurs in the region are sub-optimally small, womens returns to scale are significantly larger than mens, implying that women would gain more from increasing their scale. The authors argue that the main reasons for the sub-optimal size of female-owned firms are that they are both capital constrained and concentrated in industries with small firms.

Women's Unemployment During Transition: Evidence from Czech and Slovak Micro-Data

We analyse womens weekly probabilities of leaving unemployment in the Czech and Slovak Republics (CR and SR) in order to investigate three questions: 1) Why are unemployment rates much lower in the CR than the SR?; 2) Does the unemployment compensation scheme (UCS) substantially lengthen unemploment spells?; and 3) Why are womens unemployment rates higher than mens? We find that differences in the behaviour of the individuals, employers and institutions in the SR and CR (as measured by differences in coefficients) play a larger role in determining the CRs shorter female unemployment spells than do differences in measured demand and demographic variables. The UCS has only a moderate effect on duration and its impact is greater in the CR. The differences between mens and womens spells (in each republic) are explained more by differences in coefficients than by differences in observed characteristics.

Women's unemployment during transition

We analyse women’s weekly probabilities of leaving unemployment in the Czech and Slovak Republics (CR and SR) in order to investigate three questions: 1) Why are unemployment rates much lower in the CR than the SR?; 2) Does the unemployment compensation scheme (UCS) substantially lengthen unemploy‐mentspells?; and 3) Why are women’s unemployment rates higher than men’s? We find that differences in the behaviour of the individuals, employers and institutions in the SR and CR (as measured by differences in coefficients) play a larger role in determining the CR’s shorter female unemployment spells than do differences in measured demand and demographic variables. The UCS has only a moderate effect on duration and its impact is greater in the CR. The differences between men’s and women’s spells (in each republic) are explained more by differences in coefficients than by differences in observed characteristics. JEL classification: C41, H53, J23, J64, O15, P2.

When does FDI have positive spillovers? Evidence from 17 transition market economies

We use rich firm-level data and national input–output tables from 17 countries over the 2002–2005 period to test new and existing hypotheses about the impact of foreign direct investment (FDI) on the efficiency of domestic firms in the host country (i.e., spillovers). We document that backward linkages have a consistently positive effect on productivity of domestic firms while horizontal and forward linkages show no consistent effect. We also examine how the strength of spillovers varies by sector, FDI source, institutional environment (corruption, red tape, level of development), firm’s distance to the technological frontier, and other firm- and country-specific characteristics.