Transitioning Labor Market: Balancing Flexibility and Security: The Experience of Central and Eastern Europe

Author: Sandrine Kuster
Publisher:
Publish Date: 2005-08-01
Features: The "Global Employment Agenda for Decent Work for All," adopted by the International Labour Organization (ILO) management in March 2003, is a major activity of the ILO's Employment Department and also the guiding framework for this book's research. Global competition and technological progress have led to continuous changes in the labor market, and the successful management of these changes through social and labor market policies is a key component of the Global Employment Agenda. These policies can enhance workers' skills, mobility, and flexibility, but at the cost of some employment and income security. The agenda provides a framework for discussing such research and its policy implications, which helps to further refine policies at the regional and national levels. More specifically, this monograph is the outcome of technical projects implemented by the ILO in developed countries, transition countries, and developing countries on labor market flexibility and security. The project aims, in the long term, to achieve full, productive, and freely chosen employment at the global, regional, national, and local levels, analyzing the interrelationships between labor market flexibility, stability, security, labor market performance, and labor productivity. This book fills the gap in the existing literature on specific case studies of transition countries in Central and Eastern Europe. The research and comparisons conducted on the transition countries studied, as well as the corresponding labor market policy conclusions, will be of great interest to policy makers in governments and social partners, as these studies can help them understand methods for better managing labor market changes from economic and social perspectives. Since the political, economic, and social reforms began in Central Asian and Central and Eastern European planned economies, their labor markets have undergone profound changes. In the past, governments in these countries guaranteed full employment, even experiencing labor shortages, but after 1989, they suddenly faced rapid growth and long-term high unemployment. Labor legislation and labor market institutions were unable to effectively address this new situation. Businesses sought greater freedom to reduce their large labor reserves and adjust their workforce according to production and economic changes, while the large number of laid-off workers needed help in finding new jobs, improving their skills, and coping with unexpected income losses. Governments' responses included revising labor legislation, establishing employment services, and providing assistance to unemployed workers in finding jobs. These countries also introduced labor market policies to help job seekers enhance their employability and intervene on both the supply and demand sides of the labor market. International market competition forced businesses in these countries to reduce production costs, including labor costs, to reasonable levels and to respond quickly to market changes. In addition to layoffs, they began offering workers short-term contracts, civil law-regulated contracts, or informal employment with no contracts and paying partial wages in cash to avoid taxes. However, faced with the increasing flexibility of employment forms and the growing share of informal employment, as well as the corresponding weakening of workers' employment security and social protection, governments had to further revise labor legislation and seek more effective support for workers. In this process, social dialogue has played an increasingly important role at both the national and enterprise levels. The current challenge is to find a new balance: providing businesses with appropriate adjustment flexibility to remove obstacles to increasing labor productivity, while ensuring workers receive reasonable employment and income security to eliminate unemployment and poverty. Developed countries have recognized and are addressing this issue by analyzing the labor market institutions needed to ensure this "flexibility-safety." For transition countries, this issue has now become particularly important. Employers and workers in transition countries believe that the revision of labor laws and labor market policies and social policies have not fully met their reasonable demands, putting them at a disadvantage compared to competitors or other groups. The combinations of employment protection and labor market policies in developed countries vary greatly, but the mainstream trend is to provide greater adjustment flexibility for businesses while compensating with greater employment security for workers outside the business sector. Since the likelihood of workers being laid off has increased, they must be given a sense of security to accept this outcome: greater assistance from labor market institutions in reemployment, reasonable income support, and more opportunities to participate in labor market programs. The purpose of this book is to explore the extent of flexibility and security required by transition countries and the new directional implications of their labor market policies and social policies. The analysis shows that, on average, most transition countries are not lagging behind in relaxing labor market regulations compared to developed countries, but they still have weak enforcement of laws and labor market institutions and policies, which support high employment and low work safety. This situation has negative impacts on economic and social development, so much work needs to be done in this regard. The book suggests feasible policy improvements to address these shortcomings.
ILO Employment Department Executive Director: Galan Huthun