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poverty tell varied stories; while poverty seems to have stopped increasing, 1995 data show no clear downturn.9

One major factor limiting the effects of growth in cutting poverty and other social costs is the dramatic increase in inequality in all post-communist countries, coupled with dwindling state redistributive capabilities. In most countries, growing inequalities in income and wealth are coupled with failure to rationalize the tax system and collect taxes effectively, and thus to direct some of the winners' gains from growth into programs targeted to reducing poverty.

More specifically, the transformation process has created large pools of poverty that will not shrink automatically as economies strengthen. Two problems in particular stand out: (1) the large number of acutely depressed regions and cities that depended on industries that are now dying, and (2) the growing pool of long-term unemployed. As noted earlier, in most of Eastern Europe, unemployment has declined since 1993 or 1994. However, workers who have been unemployed for more than a year comprise a growing proportion of the still-substantial totals. By 1995, long-term unemployed were more than 40 percent of total unemployed in all Eastern European countries except the Czech Republic, and exceeded 60 percent in Bulgaria and 87 percent in Macedonia (Allison and Ringold, 1996:27-28). In most of the Eastern European countries for which data are available, roughly a fifth of the long-term unemployed are under 25 years of age, while two-thirds to three-quarters are between 25 and 60; substantial portions are unskilled or have comparatively limited education (supplementary tables provided by Dena Ringold). Experience in Western Europe and elsewhere indicates that it is particularly difficult for the long-term unemployed to find and keep new jobs (see, for example, Boeri and Scarpetta, 1994). Other longer-term problems are probably emerging in some of the poorest countries. For instance, in Albania, it is likely that child labor has increased, and school attendance (particularly by girls) has dropped (personal communication from Katherine Verdery).

If brisk and sustained growth can be achieved, many of the households near the center of the income distribution that were pushed into hardship in the early 1990s will rise once again above the poverty line. But some of the costs of the initial transformation—sharply increased inequality, dying industries, and the long-term unemployed—pose problems for social policy that will not yield to growth alone.

The Need for Systemic Reforms in Social Sectors

In addition to the enduring problems created by the initial stages of transformation, post-communist countries face an array of social-sector challenges that have quite different causes. Even more than the problems generated by


Personal communication from Irena Topinska, University of Warsaw, and Branko Milanovic, The World Bank. Data for 1996, still being analyzed, may indicate a slight decline in poverty.

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