Do Labour Market Institutions Matter in Transition Economies? An Analysis of Labour Market Flexibility in the Late Nineties

The objectives of this paper are to develop initiatives on how to measure the flexibility of the labour markets of transition countries and shed some light on the ongoing debate on the role of labour market institutions in labour market performances. Labour market regulations are introduced with the objectives of improving workers’ welfare through benefits or/ and social security programmes. But because benefits have costs, budget constraints need to be considered in policy choices: in a market economy benefits may then reduce employment, and employment protection may protect some workers (insiders) at the expense of others (youth, long-term unemployed, etc.). It is often argued for example, that the poor performance of European countries compared with that of the United States is due to labour market rigidities. It follows from this controversial argument that the road of maximal labour market flexibility should be taken (for example by weakening trade unions power and labour market regulations). This proposition has strong political implications, since it questions both the access to employment and the quality of this employment.