**Table 1.2**

**Initial Conditions: Employment, Productivity and Wages**

||Per 1000<br>population<br>with com-<br>plete and in-<br>complete<br>secondary<br>and higher<br>education|Employees<br>with<br>higher<br>education<br>per 10,000|Labor<br>productivity<br>Russia=100|Unit labor<br>cost<br>SU=100|Average<br>monthly<br>monetary<br>payments<br>to workers<br>and em-<br>ployees<br>(Rubles)|Average<br>monthly<br>pay of<br>workers<br>in state<br>farms<br>(Rubles)|
|---|---|---|---|---|---|---|
||**1986**||**1988**|**1988**|**1987**|**1986**|
|Armenia|751|654|74.7|103.1|191|150|
|Azerbaijan|741|417|83|94.3|165|141|
|Georgia|756|455|74.7|109.3|177|140|
|Moldova|679|643|75.4|93|171|152|
|Kyrgystan|640|476|64.3|104.3|167|156|
|Tajikistan|650|386|82.6|109.9|166|141|
|Uzbekistan|698|343|62.5|107|170|160|
|Median CIS-7|698|455|74.7|104.3|170|150|
|Median FSU non CIS-7|688|598|93.3|91.1|199|198|

Source: Adapted from Wolf (2003)

# **Institutional transition and transitional reforms**

The desegregation of the Soviet Union in 1991 was a political move aimed at ousting Gorbachev rather than a programmed set of political and economic reforms aimed at improving the republics' performance. It was unexpected and as such the republics were unprepared for the economic consequences. The CIS-7 in this respect experienced a similar succession of events to the one experienced in other republics with the first rounds of prices liberalization in 1991 and 1992, the consequent exposure of previously overhanging inflation and a sharp rise in prices, the disorganization of production, the break-up of the payment and financial systems, the decline in trade and exchanges and the collapse in output.

With the notable exceptions of Kyrgystan and Uzbekistan, the CIS-7 have also experienced extreme _political instability and conflict_ . Armenia and Azerbaijan fought over the NagornoKarabach area between 1992 and 1993 which resulted in human losses and also in a sudden arrest of cross-border trade. Tajikistan experienced a prolonged civil war between 1992 and 1997 which halted reforms and economic development. Moldova has been struggling throughout the 1990s with the breakaway region of Transnistria. Georgia has been subject to internal instability throughout the 1990s with the regions of Abkhazia and Tskhinvali and despite the recent changes in government the situation remains highly volatile. In addition to internal conflicts, regional instability determined by the Chechen, Afghani and Iraqi wars led to a sharp movement of refugees and Internally Displaced Persons (IDPs) across the CIS-7 contributing to political instability, affecting trade relations and complicating labor market functioning. While open armed conflict have now been sedated, none of these countries can claim to have permanently resolved the internal instability with the political systems remaining very fragile.

Output decline, conflicts and low investments have had a major impact on _institution building._ The desegregation of the Soviet Union entailed the desegregation of its institutions including political, legal and administrative institutions. Republic branches of the Soviet institutions could not function autonomously as virtually all instructions came from Moscow during the Soviet period. They had to be rebuilt. This meant reaching a political consensus, drafting the necessary legislation and establishing the organization and institutions to run the legislative, judiciary, and executive branches. In the midst of conflict and economic decline this proved very difficult and many of the critical reforms such as the introduction of essential legislation (constitution, civil, penal 6