Transforming Post-Communist Political Economies (1998) / Chapter Skim
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7 Formal Employment and Survival Strategies After Communism
7 Formal Employment and Survival Strategies After Communism
Pages 177-202
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From page 177... ...
Numerous studies, using techniques developed for Western market economies, have examined the flows into and out of formal jobs, particularly in Eastern Europe (see, for example, all the papers in Commander and Coricelli, 1995; Coricelli and Revenga, 1992~. The assumptions underlying this work are clearly presented in the leading labor market model for post-communist countries (see Aghion and Blanchard, 1994; Blanchard et al., 1995~.
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From page 178... ...
A person can also be paid a lower wage, either relative to others or in absolute terms, with it being understood on both sides that this implies a lower level of time commitment to the firm. Second, individuals can also respond to changes in their formal employment by engaging in various "survival strategies," or alternative ways of earning income, primarily through informal self-employment.
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From page 179... ...
In our sample, 70 percent of the randomly selected employed people were engaged in a survival strategy of some kind. Remarkably, we find that people who remained employed were more likely to engage in survival strategies than were those who were unemployed; the proportions are 69 percent for the employed and 65 percent for all the unemployed (56 percent of the unemployed receiving assistance and 79 percent of the unemployed not receiving assistance)
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From page 180... ...
Using an approach developed in the study of Western labor markets, this literature has focused on formal employment and the measurement of "true" unemployment. A major puzzle for this theory is that even though the employment decline has been of a similar order of magnitude, unemployment rates in the former Soviet Union are much lower than those typical in other areas of Eastern Europe.
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From page 181... ...
fell by over 50 percent, and measured in dollar terms at the market exchange rate reached around $33 billion ($600 per capita)
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From page 182... ...
THE MODEL The two critical assumptions presented in the introduction concern the complementarities between the actions of firms and individuals and the nature of adjustment costs. Two actions are complementary if taking one does not preclude taking the other, and taking both together gives at least as much benefit as taking the two separately.5 In the case of differentiable functions, complementary is identical to positive cross-partial derivatives.
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From page 183... ...
Some of them may leave the firm altogether, as implied by the conventional theory, but our model also allows other forms of reduction of work intensity short of complete separation. Note that nothing in our model requires that every person work at a reduced intensity inside the firm during or after the completion of reform.
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From page 184... ...
Our empirical work therefore includes regression analysis with the intensity of inside and outside work on the left-hand side in a pair of simultaneous equations. Variables on the right-hand side will include demographic and firm-specific information.
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From page 185... ...
, use of a dacha or other plot of land to grow food, work to some extent as a private taxi driver, renting out of one's apartment, business trips abroad, and renting out of a garage. With the exception of the rentals, all 8Cost considerations precluded us from interviewing separated people in person.
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From page 186... ...
Of the 493 people in our sample who had a car (34 percent of the total) , 34 percent worked as private taxi drivers (4 percent said they worked full-time in this occupation)
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From page 187... ...
We now test more formally for the effect of work intensity on the use of survival strategies. Regression Results Table 7-2 shows regression results for the simultaneous equation system in which the inside and outside intensity of work are the left-hand-side variables.
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From page 188... ...
(0.036) Outside intensity -9.48*
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From page 189... ...
We also used the number of children, adults, pensioners, and students in the family, as well as the total number of people working in the family in the outside intensity regression. For the inside intensity regression, we used dummies for more than two nonworking dependents in the family and for whether no one else in the family was working.
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From page 190... ...
The lowest two quintiles were more likely to have engaged in strategies than were unemployed people with assistance, but less likely than the unemployed without assistance.l7 This result supports Hypothesis 1. To estimate survival strategy earnings, we conducted separate surveys of earnings from various survival strategies in the fall of 1994 (with informal focus groups of Kiev State Economic University students)
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From page 191... ...
Our estimates therefore present a lower bound of the extent to which people can compensate for low formal employment incomes through survival strategies. All the numbers given here are per month unless otherwise indicated.l8 We further estimate that work as a private taxi driver paid $8 per month if part-time and $80 per month if full-time.
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From page 192... ...
The lowest part of the income distribution is significantly lower for unemployed people without assistance than it is for the randomly selected nonseparated people, but the medians are much closer together. This is because people could earn large amounts from survival strategies relative to official earnings, but for some reason, 30-40 percent of the unemployed did not engage in these strategies.
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From page 193... ...
Of the lowest quintile of wage earners, 45 percent are in the lowest quintile, and 50 percent are in the lowest one-third of the income distribution. In conclusion, differences in average total income are much smaller than those for average formal wages (supporting Hypothesis 1~.
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From page 194... ...
Nonseparated and Unemployed Inside Earnings Outside Earnings 8.3 (12.1)
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From page 195... ...
Again, however, this is not necessarily cause for rejecting Hypothesis 1 because the cross-tabulation evidence clearly indicates that most people obtained a relatively high level of outside earnings. Relevant for Hypothesis 2, the dummies for women and for pensioners have a significant negative sign in the inside earnings regression, but are not significant in the outside earnings equation.
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From page 196... ...
The second column of Table 7-7 is the noncoping regression, and it again shows the female dummy to be significant, even when we control for the inside and outside intensity of work. Although not shown here, the dummy for pensionable age is not significant in any specification for either regression.
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From page 197... ...
CONCLUSIONS AND POLICY IMPLICATIONS How well does the established theory, based on Eastern European experience, explain labor market adjustment in Ukraine? It completely ignores informal activities, while the evidence indicates this is an important part of both how people survive and how they behave in the formal labor market.
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From page 198... ...
This figure is remarkably low and much lower than the rate in most post-communist countries of Eastern Europe, where it ranged between 10 and 20 percent. It is commonly supposed that the official numbers are understatements, but even surveys indicate that open unemployment-people who do not have a job and would like one in Ukraine is only between 3 and 6 percent.
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From page 199... ...
After January 1993 there was a sharp increase in firing: 3 percent during 1993 and 5 percent from the beginning of 1994 as labor force reduction, and 4-5 percent as "other." Even though Ukraine has lagged in terms of overall economic reform, there has been a substantial labor force reduction in many state enterprises. Many people have either been fired or been forced to quit.
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From page 200... ...
This is just 34 percent of all the unemployed people in our sample, and converts to an unemployment rate among the population of 4 percent. If we assume that only people unemployed at least 4 months were registered unemployed, the implied unemployment rate falls to 2 percent.24 The reemployment rate among our sample was very high for anyone who would have been eligible for benefits.
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From page 201... ...
Although this implies an overall unemployment rate similar to that in Eastern Europe, Ukraine has much less long-term unemployment. Most likely this is because the benefits are so low typically around 20 percent of the minimum survival wage while it is relatively easy to find a new job of some kind and to supplement that income with a survival strategy.
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From page 202... ...
In Unemployment, Restructuring, and the Labor Market in Eastern Europe and Russia, S Commander and F
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