for over 80 percent of the going wage rate for low skilled workers. Given that many young workers lack labor market experience and skills, they are likely to be negatively affected by high minimum wages (World Bank, 2001; Kertesi and Kollo, 2003; Rutkowski 2003a,). These considerations led the Polish government to introduce a youth sub minimum wage accounting for 80 percent of the adult minimum wage in 2002.

Youth unemployment matters because evidence shows that it is often associated with poverty. A priori this is not an obvious result, as it may be the case that young people looking for work are predominantly secondary earners in relatively well-to-do families, who just want to earn additional income. However, in many transition economies the unemployed youth live in poverty. For example, in Macedonia and Bulgaria the incidence of poverty among the unemployed youth is significantly higher than the average (World Bank 1999; Rutkowski, 1999),. In this case the likely reason is that young people in poor families cannot afford to be out of the labor force. Low family income forces people to enter the labor market at a relatively young age. As long as young people are searching for jobs they are counted as the unemployed, and in this sense poverty gives rise to youth unemployment. Obviously, prolonged and unsuccessful job search by young family members can also contribute to poverty. Either way, youth unemployment has significant negative poverty effects. The issue of youth unemployment in SEE is explored in more detail in Kolev and Saget (2003).

# **Large and persistent regional disparities in labor market conditions**

There are substantial disparities in labor market conditions in most ECA countries. Most regions are economically depressed with high unemployment rates, often coupled with low labor force participation rates (in large part due to the “discouraged worker” effect) and, consequently, low employment rates. In these regions the job creation and hiring rates are low, severely limiting the chances to escape unemployment. At the same time, in a small number of expanding regions unemployment is relatively low, the job creation rate is high, and employment opportunities are plentiful. Table 8 illustrates a particular dimension of regional labor market imbalances: differences in the unemployment and employment rates.

The dispersion in unemployment rates in the six European transition economies in the sample is substantial. The unemployment rate in the highest unemployment region is in most cases at least twice as high as in the lowest unemployment region (with Poland being an exception).<sup>8</sup> For example, in Bulgaria the unemployment rate in north-west region is 32 percent, compared with 16 percent in the south-western region (see Annex Table A1). The differentials increase with the level of regional dis-aggregation, i.e. when the analysis concerns a larger number of smaller regions. Particularly, if the capital region is shown separately then the disparity between the highest and the lowest unemployment region becomes even more pronounced. For example, the unemployment rate in the highest unemployment region of Slovakia is almost tree times as high as in the capital region (24.5 percent and 8.5 percent, respectively).

Regional unemployment inequality reflects strong regional concentration of job creation and employment growth. Often it is only a few regions which create jobs on a net basis (that is where the job creation rates exceeds the job destruction rate) and where the jobless face good

> 8   The degree of regional variation of unemployment rates is influenced by the size of the regions (in general, the larger are the regional units, the lesser the variation).  Thus the variation of unemployment rates is not comparable across countries, as regions differ in size.  Nevertheless, the comparison gives a rough idea of the regional disparities in labor market conditions.

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