arrears, forced unpaid leave, short working hours. These jobs can exist only as long as enterprises are not subject to competition and receive direct or indirect subsidies (e.g. tax arrears, non-payment of utility bills). Such non-viable jobs still exist largely in the CIS countries, including Belarus, Moldova, Russia and Ukraine, where enterprise restructuring has proceeded at a slower pace (See Box 2)

## **Box 2  High employment but many of the jobs are of low productivity and unviable**

Moldova is an example of a country with a relatively high employment and a low unemployment rates where a large proportion of jobs is of low productivity and thus probably unsustainable. As much as 20 percent of privatized firms reported overstaffing in 2001. Moreover, one of every 10 workers was on a forced unpaid leave and the average duration of such leave was three months. Many Moldovan firms close for a part of the year. As a result of the low level of activity in poorly performing firms the actual hours of work are very low. An average workers in Moldova works only 28 hours per week, while his Polish, say, counterpart works 42 hours. Similar problems, although to a lesser and decreasing degree occur in Russia (World Bank, 2003).

Source: Rutkowski (2004)

# **Emergence of unemployment and decline in labor force participation**

The dramatic decrease in the number of available jobs caused by the shocks associated with economic transition, especially at its early stage, gave rise to unemployment and the fall in labor force participation. The unemployed are, by definition, those workers who lack jobs and are actively looking for new ones. Persons out of the labor force (economically inactive) comprise of two categories. First, the discouraged workers, that is able bodied people of working age who would like to work, but who gave up job search as their efforts proved futile and they ceased to believe that they can find a job. Second, persons who for various reasons are not interested in having a job, for example students enrolled in full time education, homemakers, persons with disability, or older persons. The dynamics of unemployment and the labor force hinges on labor market conditions. Unemployment tends to increase as labor market conditions deteriorate. However, it may temporarily increase in response to the increase in the availability of job opportunities as workers who had been inactive enter the labor market and start looking for jobs. Labor force participation as a rule falls when labor market conditions worsen. Some workers become discouraged, and cease looking for jobs (thus, rather than being classified as unemployed they are classified as inactive). Younger people may chose to stay longer in education to delay the entering the labor market. Some workers may take advantage of benefits offered by the welfare state: social assistance, disability pensions, or early retirement. Older workers chose retirement and do not try to supplement their pensions with income from work.

In the transition economies all these effects have occurred in response to the fall in aggregate and, consequently labor, demand. Labor force participation rates fell and unemployment rose across the board. However, in various countries these effects have occurred in different proportions. In some countries the loss of jobs has translated largely into an increase in unemployment. In others, it has mainly led to a fall in labor force participation rates. Thus, labor force patterns differ across ECA countries (Table 1). For example, in the late 1990s the employment ratio – and thus roughly the number of available jobs – in Hungary and Poland was virtually the same. However, unemployment in Poland was high (well over 15 percent), while in Hungary it was relatively low (below 10 percent). Thus, Hungary and Poland exhibited different 6