Mark E. Schaffer

Job creation and job destruction in a transition economy: Ownership, firm size, and gross job flows in Polish manufacturing 1988-1991

Comprehensive firm-level data for Polish manufacturing show that in state-owned firms the large drop in net employment since the start of the transition in 1990 has been driven by a jump in the job destruction rate; job creation, by contrast, is located disproportionately in the private sector. Small firms are more dynamic than large firms, but even after controlling for size, private firms have a higher net employment growth rate.

A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth

This paper examines the importance of competition in the growth and development of firms. We make use of the large-scale natural experiment of the shift from an economic system without competition to a market economy to shed light on the factors that influence innovation by firms and their subsequent growth. Using a dataset from a survey of nearly 4,000 firms in 24 transition countries, we find evidence of the importance of a minimum of rivalry in both innovation and growth: the presence of at least a few competitors is effective both directly and through improving the efficiency with which the rents from market power in product markets are utilised to undertake innovation.

Benchmarking Structural Change in Transition

The transition to market-based economic systems in the countries of Central and Eastern Europe and the former Soviet Union involves fundamental shifts in the allocation of resources and deep changes in the structure of production and employment. This paper uses a simple model of economic development and structural change with technology spillovers to benchmark structural change in the transition economies and simulate the path of adjustment from central planning. We then analyse data from 10 accession candidates and 12 CIS countries to measure the progress in structural change that has taken place thus far and to assess the further structural changes that should be expected, with particular attention to the implications for accession.

Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies

Wide differences between effective or realised average tax rates and tax yields that would result if statutory tax rates were strictly applied indicate tax compliance and collection problems. Due to the greater politicisation of tax systems in transition economies (TEs), we would expect the shortfalls in effective tax yields for TEs to be larger than a benchmark for the mature market economies where tax systems are well established, the administrative capacity is stronger and tax arrears are tolerated less frequently. The methodology involves calculating an effective/statutory (E/S) tax ratio. Initial results indicate that the leading TEs have E/S ratios similar to the EU average. We find a positive correlation between progress in transition and effective tax administration, as measured by our E/S ratio. For slow reformers, the effectiveness of tax collection appears to vary with the extent of state control. Those TEs that have maintained the apparatus of the state have done well in tax collection compared to those countries where there is evidence of state decay. This raises a number of broad policy issues relating to the speed of transition, the interaction of politics and economic reforms, the capacity of the state to govern and the need for market institutions to develop.

Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey

This paper reports the findings of a survey of more than 3,000 firms in 20 transition countries. It shows that barter and other non-monetary transactions (including the use of bills of exchange, debt swaps, barter chains, and the redemption of debt in goods) are an important phenomenon in Russia and Ukraine. Contrary to what is commonly believed they are not negligible in Central and Eastern Europe. The causes and consequences vary significantly between countries, but several conclusions emerge strongly. First, barter and other non-monetary transactions are associated in all countries with financing difficulties for firms. They appear to be helping to assure liquidity in an environment in which contract enforcement (including tax enforcement) is uncertain. Secondly, the use of these mechanisms is not significantly related to the restructuring and performance of firms that use them in most countries except Russia. Thirdly, in Russia and Ukraine the nature of non-monetary transacting is importantly different from elsewhere. It is much more associated than elsewhere with market power and limited trading networks. It is also more costly in terms of restructuring and performance. Firms that barter are less likely to improve their existing products, probably because barter enables them to dispose of otherwise unsaleable goods. They are also more likely to engage in internal reorganisation of a kind designed purely to service existing barter chains. Internal reorganisation is strongly associated with improved performance for firms that do not barter, but is unrelated to performance for firms that do. Overall, in Russia and to a lesser extent in Ukraine (but not elsewhere) the findings are consistent with the hypothesis that economic disorganisation, in the sense of Blanchard & Kremer (1997), means that barter and other non-monetary transactions are both more likely to occur and more damaging when they do occur.

Competition, Innovation and Growth in Transition: Exploring the Interactions between Policies

Transition has entailed the introduction of policies to stimulate product market competition, to establish effective corporate governance and to harden enterprise budget constraints. How do these policies interact? Are they substitute policy instruments or does one policy reinforce the effect of another? Although early endogenous growth models predicted a negative relationship between competition and innovation, Aghion, Dewatripont and Rey (1999) showed that this could be reversed if agency considerations were introduced. In their model competition acts as an incentive mechanism to reduce managerial slack, which produces the additional prediction that competition and corporate governance are substitutable. But in a profit-maximizing framework in which incumbent firms innovate to escape competition, there will be complementarity between increased product market competition and governance and between competition and hard budget constraints (Aghion and Howitt 2002). We use the EBRD-World Bank Enterprise survey of over 3,000 firms in 25 transition countries to test for interaction effects between policies. We find that competition and hard budget constraints are complementary. We also find that competitive pressure (a) enhances the performance of old firms, which is suggestive of a role if agency effects and hence of policy substitutability and (b) enhances the performance of new firms, which is consistent with complementarity. Finally, the evidence points to the prevalence of financing constraints facing new firms.

Financial Discipline in the Enterprise Sector in Transition Countries: How does China Compare

This paper makes some selective comparisons of the empirical evidence relating to financial discipline and soft budget constraints in the enterprise sector in China and the transition countries of Central and Eastern Europe and the former Soviet Union (CEEFSU). The paper finds that: (1) in both CEEFSU countries and China, budgetary subsidies have fallen as prices have been liberalized, and the budgetary subsidies which remain are not clear evidence of soft budget constraints; (2) firms in both CEEFSU countries and China typically impose hard budget constraints on each other; levels of trade credit in China were roughly constant in 1994-96, implying inflows have approximately equalled outflows, i.e. inter-enterprise debts are being paid; the level of total trade credit observed in China, at about 20-25% of GDP, is similar to that observed not only in CEEFSU countries but also in developed Western economies; (3) in a comparison of bank financing of Chinese and Hungarian firms, Chinese banks were providing poorly-performing firms with new financing, whereas in Hungary, banks were reducing their exposure to bad firms; and (4) tax arrears in CEEFSU economies have emerged as a major source of soft budget constraints in recent years, but enterprise-level data for China show that as of the early 1990s, tax arrears were not an important source of financing for loss-making Chinese firms.

Enterprise adjustment in transition economies : Czechoslovakia, Hungary and Poland

This paper analyzes the impact of the Polish stabilization program on the behavior of state-owned firms by summarizing and evaluating three case studies. The authors outline a framework to analyze whether firms have adjusted differently according to differences in their market power, financial status, or exposure to trade and international comparative advantage. They find no evidence for differences in adjustment from any source; in all three industries adjustment has been relatively modest and the governance of firms has hardly changed at all.

Productivity, Employment and Labor Demand in Polish Industry in the 1980s: Some Preliminary Results from Enterprise-Level Data

The paper uses annual data from a panel of 334 Polish industrial enterprises over the period 1983–1988 to test empirically a simple neoclassical approach to the socialist labor market. First, an enterprise production function is estimated. The paper finds that for most enterprises, the resulting estimated marginal product of labor exceeds the wage paid by the enterprise by a considerable margin, suggesting general excess demand for labor. The paper then looks at how the difference between the MPL and the wage is related to the rate of change of employment, and finds that firms where the MPL is higher than the wage — firms which in a neoclassical model would have a large excess demand for labor — do not shed labor any more slowly than other firms.

Wage Policies of a Russian Firm and the Financial Crisis of 1998: Evidence from Personnel Data - 1997 to 2002

A trailer restraint positively restrains a trailer against a dock by means of the trailer ICC bar. The trailer restraint is self-aligning with an ICC bar located anywhere within its range of operation. The trailer restraint comprises a shoe that pivots on a trunnion shaft within a housing located under the trailer ICC bar. The trunnion shaft is slidable within the housing against a strong spring. A hydraulically operated slider advances to pivot the shoe until a working surface thereof contacts the trailer ICC bar. Further advancement of the slider causes the shoe to pivot about the contact point of the shoe on the ICC bar, thereby sliding the trunnion shaft until the shoe working surface is aligned with the trailer ICC bar. A lock bar received on the trunnion shaft slides therewith. A pawl engages teeth on the lock bar to prevent further sliding of the lock bar and trunnion shaft. Various switches sense the location of the shoe and lock bar and are incorporated into an electrical circuit to display the status of the trailer restraint to nearby personnel.