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their present jobs (at their present places of work) indefinitely. For those who wished to change enterprises, there was usually no difficulty in finding alternative employment. This situation was more a consequence of the choice of overambitious macroeconomic targets by planners than a result of specific policies in the labor market. But it meant that the authorities could use records of employment rather than contributions as the basis for entitlement to social insurance benefits. They could also use the enterprise (or its trade union organization) as a major vehicle for the provision of social benefits. Finally, since substantial social benefits were provided through the state or state enterprises, wages were relatively low. Differentials were also small and failed to reflect either differences in the scale of investment in human capital or the risk to which different occupations were exposed. This meant that the labor market was both inefficient and inflexible: it took a long time to reallocate labor, and hence new industries found it difficult to expand rapidly. It also meant that the labor process itself was inefficient: productivity was low, and the structure of employment appeared ''old-fashioned" by comparison with that found in Western Europe.

The Russian government has attempted to reconstitute the framework of social protection and to reform labor market institutions to bring them more into line with the structures found in advanced industrial economies. The breakup of the Soviet Union itself and the subsequent opening up of the domestic product market have been important, as have the abandonment of central planning and the consequent changes to the structure of demand. As a result of the changes induced by these various pressures, the labor market has apparently become surprisingly flexible. There has been considerable adjustment in the structure of both employment and earnings without high levels of unemployment. But the system still contains rigidities, and these contribute to the fact that productivity remains low.

The opening up of former planned economies means that their labor markets are now exposed to pressures from the global economy from which socialism offered some protection. Most if not all advanced industrial economies have experienced increased competition from so-called emerging market economies in the last 10 to 15 years. Increased competition in traditional industrial sectors has undermined the security of both earnings and employment enjoyed by workers in such sectors as engineering and light industry. As a result, employees, especially skilled industrial workers, have experienced a deterioration in their relative economic status in most industrial market economies. How to respond to this development constitutes perhaps the major social challenge facing Europe and North America at the end of the twentieth century.1 Transition economies face a similar challenge. It is not clear how far this has been realized by policymakers in Russia-—or, indeed, in the rest of the region.


This issue is discussed at greater length in World Bank (1995).

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