Formal Employment and Survival Strategies under Economic Reform in the Former Soviet Union

Ref. no. 680-52

Conventional labor market approaches are inadequate for understanding employment dynamics and strategies in the former Soviet republics. State enterprise workers make simultaneous decisions on the extent of their work in the state enterprise, on alternative occupations and sources of income (many of which are informal), and on social network interactions (that is, many are or become "network entrepreneurs"). As a result, complex survival strategies have evolved during the transition, transcending conventional notions of employed and unemployed. In response to shifting sets of incentives, workers move along a continuum of formal and informal employment and income options, a strategy that has important implications for social and labor market policies.

This study compares how the different reform efforts in Latvia, Russia, and Ukraine have affected workers. Using a survey methodology developed in Russia and Ukraine, it investigates what has happened in formal and informal employment and in network entrepreneurship. The empirical analysis sheds light on the patterns and importance of informal sources of income. The study suggests who is benefiting from reform in these countries and provides insights on the main characteristics of "noncopers." It also analyzes the differential income outcomes resulting from the type of firm in which a worker was employed (state or private) and from whether the worker stayed in the firm or was separated. It shows that the deeper reform in Russia compared with that in Ukraine has implied more restructuring by firms, more network entrepreneurship, and more informal labor income. These outcomes help explain why unemployment has stayed low.

The results of this study are being disseminated through seminars, conferences, and publications.

Responsibility: Europe and Central Asia, Country Department IV, Office of the Director--Daniel Kaufmann (dkaufmann@worldbank.org) and Debra Tsimbidis. With Simon Johnson, Massachusetts Institute of Technology; Oleh Ustenko, Kiev State Economics University; and Lorena Barberia, Harvard University.

Completion date: December 1997.

Reports:

Johnson, Simon, Daniel Kaufmann, and Lorena Barberia. "Network Entrepreneurs during Reform."

Johnson, Simon, Daniel Kaufmann, and Andrei Shleifer. 1997. "The Unofficial Economy in Transition." Paper presented at the Brookings Panel on Macroeconomic Activity, Washington, DC, September.

Johnson, Simon, Daniel Kaufmann, and Oleh Ustenko. Forthcoming. Formal Employment and Survival Strategies after Communism. Washington, DC: National Academy of Sciences.

_____. "Impact of Restructuring in the Transition."

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