A World Bank report published on Tuesday reveals that labor market conditions in eastern Europe -- despite impressive economic growth -- remain unfavorable to fighting rampant unemployment.
The meat of the matter is: Eastern Europe needs more and better jobs
According to a new World Bank report, which was published on Tuesday in Washington, D.C., the output growth in eastern European countries has not been paralleled by an equivalent improvement in labor market conditions. Most eastern European countries are still not offering enough job opportunities, especially for skilled workers, to keep up the economic growth of the last few years.
The report, entitled "Enhancing Job Opportunities: Eastern Europe and the Former Soviet Union," suggests that eastern European countries -- in addition to needing a better investment climate and guaranteed minimum of social standards -- must find a way of overcoming the bureaucratic obstacles associated with setting up a business.
Fifteen years after the collapse of the planned economies in central and eastern Europe, the World Bank wanted to find out how labor markets were affected by the transition to market economies. The survey encompassed 27 states -- from Kyrgyzstan in the east to new EU members Poland and the Czech Republic in the west.
Trouble on the labor market
The World Bank surveyed 27 countries
The results were disappointing. Despite significant growth rates, which on a global scale have only been surpassed by China and India, eastern European labor markets have experienced no renaissance. Unemployment rates are high, and even when there are enough jobs, they are often informal or badly compensated.
"There were high expectations that the new private sector would start generating new jobs, and thus the unemployment that was there in the first place would have been somewhat reduced," said Stefano Scarpetta, a World Bank labor market expert and co-author of the report.
"The problem is that 15 years down the road, we can still observe double-digit unemployment rates in many countries. In central and eastern Europe, 50 percent, if not more, of the unemployed spend more than a year searching for a job," said Scarpetta.
Many countries in eastern Europe are particularly lacking in skilled jobs
Last year, the unemployment rates in Slovakia and Poland reached 18.2 and 19 percent, which is significantly higher than respective output growth. In some countries, such as Hungary, many of the unemployed do not even show up in official statistics. They completely give up looking for work and are no longer available on the job market. This may be the case in other market economies as well, but, according to the authors of the report, the problem is even more acute in eastern European countries due to their deficient social security systems.
"A significant portion of the workers are actually outside the formal sector. They are not covered by social security; they do not pay taxes, because, most likely, they work in micro units. They have irregular jobs. It's one of the concerns -- the quality of jobs, not just access to jobs," Scarpetta said.
This is especially the case in the countries of the former Soviet Union, where the main problem is not so much high unemployment as the quality of job opportunities.
Social security should provide a safety net for the unemployed
The report warns that the successful fight against poverty in eastern Europe may be endangered if the situation on the labor market does not improve in the mid-term.
World Bank economists are hesitant to offer general recommendations, because the situation in each individual country is too specific for that. Different measures need to be taken. What is certain, however, is that eastern European companies need to receive better incentives for creating jobs.
"The report argues for a two-track strategy. On the one hand, lower the cost of doing business. On the other, further improve the adaptability of the labor market, which means very different things across the board," Scarpetta said.
The report urges eastern European countries to combine social protection with incentives for job creation, which is a daunting challange, especially for societies in transition.
"In some countries, it means actually investing more into skills, training and re-training, but also reconsidering some of the labor market regulations. In Central Asian countries, the difficulty is in putting in place a minimum safety net that would enable those workers who lose their jobs actually to start looking for a new job," Scarpetta said.