What Can We Learn about Labour Market Adjustment in Candidate Countries from Literature?

Abstract

This survey covers the literature on labour market outcomes, institutions and macro- as well as microeconomic adjustment in candidate countries to find out whether and how they still differ from EU member states. The main findings can be summarised in six points. First, relative to the dramatically different starting conditions there has been substantial convergence towards continental European labour market outcomes and institutions. Second, a number of particularities remain. These are the long and persistent reductions in employment rates to levels which are in general lower than those of the more successful member states, indicating weak job creation, and the higher incidence of long term unemployment. Third, candidate countries’ labour markets have been characterised by low turnover in and out of unemployment. In particular flows out of unemployment have remained small, and most of the change in the sector composition of the work force has been accomplished by job-to-job mobility coupled with early retirements and entry of young workers. Fourth, migration rates have experienced declines during transition, despite rising disparities in regional mobility. Migration may thus be ineffective in equilibrating regional labour markets. Fifth, the elasticity of regional real wage growth in candidate countries with respect to regional unemployment rates is as ambiguous as it is in the EU. The evidence, however, weakly favours slightly higher wage flexibility. Individual wages, by contrast, have shown substantial flexibility reflecting primarily factor shortages. Sixth, as in the EU there is substantial heterogeneity in labour market dynamics among candidate countries. To my mind, these stylised facts suggest that economic policy should take the labour market rigidities, and in particular low mobility, into account when designing an accession strategy for candidate countries.