9 States, determines the contribution level based on an employer's history of generating unemployment, so that at least some of the cost of unemployment is borne by the employer.

18. The second category of medium-term objectives pertains to the efficient functioning of the labor market and labor mobility. Unemployment insurance is considered to be a passive policy because it responds ex _poste_ to a specific event of unemployment, but does not act to reduce the risk of or correct that event in the future. Active labor market policies, by contrast, are characterized by proactive measures designed to find permanent solutions to unemployment. Job creation, for example, can be stimulated through public works and temporary employment programs, or on a more permanent basis, through promoting the private sector. Programs which retrain workers in new technologies or industries where price and trade liberalization has generated higher demand are particularly useful in transitional economies. Lessons from Central and Eastern Europe reveal gaps in technological knowledge, in which the highly skilled labor force was trained for outmoded methods of production rendered noncompetitive on international markets. This was exacerbated by production targets inherited from the old system which were severely misaligned with actual demand. Structural unemployment is very costly in terms of lost production as well as income support. Retraining programs, therefore, can facilitate labor reallocation to correct sectoral imbalances resulting from the transition to an open economy. Redeployment and job brokering act in a similar manner. Agencies that provide information services about job openings and training programs contribute to labor mobility, especially among unskilled and semi-skilled workers. While active employment programs are integral to a well-functioning labor market, the drawbacks include their limited scope of effectiveness because they reach a narrow audience, and their relatively high cost. In an environment where multiple equilibria are possible, however, such as when on-the-job search is present, the Burda model presented above demonstrates that despite the drawbacks, such active labor market policies are crucial to avoiding low level, high unemployment equilibria.

19. The final category of medium-term goals consists of measures to increase administrative capacity. Some advantages to be gained are administrative cost savings through more effective contribution collection, faster and more reliable delivery of services and benefits, which encourages greater participation, and increased capacity for control, which will diminish fraud. All these contribute to reduce the costs of the system. The steps which will achieve these benefits are time- and labor-intensive, but can pay handsomely in terms of improved system efficiency. Fundamental steps include (a) replacing the enterprise as a purveyor of benefits, which will result in more equity, greater transparency of benefit levels, and less fraud and leakage from the system; (b) establishing a system of social insurance records by individual worker and firm (e.g. issuing a social security identification number); (c) computerizing record-keeping in a central database that can be linked with other social assistance program databases and used for cross-checking; and (d) improving the delivery of benefits.