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World Bank Puzzled by Slow Job Creation in Eastern Europe

The World Bank Tuesday released a study showing an unexpectedly slow rate of job creation in post-Communist Eastern Europe and the former Soviet Union.

Bank economists say they are puzzled by the persistence of high unemployment in transition economies. The report, Enhancing Job Opportunities in Eastern Europe and the Former Soviet Union, says unless the employment outlook improves, the substantial achievements in reducing poverty in the region could be halted.

The report finds unemployment in transition economies substantially above the levels prevailing in Western Europe. Jobless rates range as high as over 35 percent in Macedonia to nearly 20 percent in fast growing Poland and Slovakia. Stefano Scarpetta, one of the authors of the report, says job growth has been limited because many enterprises were greatly overstaffed during communism.

"Those firms that survived the market test from central planning to a market economy still had the opportunity to improve their efficiency without creating employment, without investing and therefore adopting new technology and creating more jobs," said Mr. Scarpetta. "They could do this by actually reducing [employment], downsizing and actually reducing the over-manning that characterized many of these firms during central planning."

Bank economists say virtually all of the jobs created since communism collapsed have come from the small business sector and from foreign investment. Another of the report's authors, Arup Banerji, says excessive government regulation has also constrained job creation. He cites the example of Croatia, where it takes three years to register a property compared to only three months in the United States.

"This is symptomatic of some of the issues that are faced, just creating an environment where firms find it easier to set up, to operate, and therefore have the incentive to plan ahead, to expand and create jobs," said Mr. Banerji.

The bank report says the economies, which have attracted the greatest volume of foreign investment, have tended to do best in job creation.