Unemployment, Well-Being and Wage Curves in Eastern Europe

The opinions in the paper are ours alone and do not represent the views of the International Labour Organization (who originally commissioned the study) or other bodies. For helpful comments, we thank Summary The paper studies the labour markets of Eastern Europe. It uses new data on 60,000 randomly sampled workers in the transition economies. To allow a comparison, the paper analyses Western data from the same sources. Three conclusions are reached. First, the microeconometric structure of unemployment regression equations is approximately the same in the nations of Eastern Europe as in the industrialized West. Second, unemployed people in the transition nations are as unhappy, relative to the employed, as those who are jobless in the industrialized Western countries. Such a result sheds doubt on the idea that voluntary or benefit-induced unemployment is worse in the East. Third, estimating a 'wage curve', using pooled data from five East European nations, produces a local unemployment elasticity of pay fairly close to-0.1. This is the figure commonly found for the rest of the OECD, which casts doubt on the argument that wages are inherently less flexible in the East. The broad conclusion from our analysis is that the workings of the labour markets of East and West appear surprisingly similar.