finding weakens somehow the overall significance of the variables indicated by the probit model as determinants of sales growth.

Explaining employment performances is even more arduous. Several significant variables in the probit regressions do not have the expected signs and the multinomial regressions results are not consistent with the probit results. Therefore, pinpointing critical variables for employment generation is not possible with available data and results.

Concerning the question related to whether size and ownership matter in explaining enterprises growth barriers, this is generally negative. We showed that in all models where we compared coefficients between regressions with or without the sales and ownership control variables we did not find very significant differences which would indicate that the inclusion of these control variables does not substantially affect the explanatory power of the 'barriers to growth' variables.

Finally, the answer to the question of whether CIS-7 countries are different from other transitional economies in their perception of output and employment growth barriers is clearly positive with the difference being larger between CIS-7 and non-CIS than between CIS-7 and other CIS countries (table A.6). This was expected and confirms the statistics presented in the previous section. Significantly different variables between the CIS-7 and other CIS countries relate to the perception of taxes, inflation, predictability of economic policies, customs, judiciary, corruption and infrastructure. Significantly different variables between the CIS-7 and non-CIS countries relate to taxes, labor regulation, inflation, exchange rates, instability, banking, customs, judiciary, parliament, central bank, police, government intervention, corruption and infrastructure. The difference between the CIS-7 and non-CIS countries touches almost all domains and is robust being consistent with or without control variables.

In conclusion, the multivariate analysis adds a certain amount of weight to the finding that difficult access to finance, high interest rates and corruption are critical perceived obstacles to output (sales) growth. On the other hand, neither the statistics presented in the previous section nor the multivariate analysis in this section have been able to pinpoint critical constraints to employment growth. Consequently, the macroeconomic explanation provided in section 2 for the negative employment growth related to changes in productivity and labor market segmentation remains the main finding of this paper in this respect.

# **4. FROM SUBSISTENCE TO GROWTH IN THE SMALL INFORMAL SECTOR**<sup>17</sup>

The previous discussion has covered the formal sector of the economy which tend to be found among larger enterprises. This section turns to the small business environment, looking at the thin line between subsistence and value-added activities and distinguishing between formal and informal activities and between wage and non-wage labor. The framework of analysis is still segmentation as we will see that this helps to explain several apparent inconsistencies in the CIS7 labor markets.

> 17 This chapter also draws on some background material prepared by Jan Babetski for the World Bank ECA Labor Market Study.

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