anywhere else in transitional economies. In fact, considering the parallel growth in wage arrears and the loss of non-wage benefits for workers, the slow decline in employment is probably fully explained by these factors alone. It could be argued that losses in real wages absorbed most of the output shock and explain labor retention in the CIS-7. From an initial situation of labor hoarding in enterprises combined with excess of labor in the market, the recessional period contributed to increase the excess supply of labor within and outside enterprises. And this phenomenon was larger in the CIS-7 than anywhere else in transitional economies.

**Table 1.3 The Output-Employment Gap During the Recession**

||GDP growth (%)|Empl. Ratio growth (%)|O-E diff (*)|Real wages growth (%)|
|---|---|---|---|---|
|CIS-7 (1989-1995)|-53.6|-11.1|-42.5|-75.4|
|Other CIS (1989-1996)|-44.2|-7.5|-36.7|-54.8|
|Non CIS (1989-1993)|-34.0|-15.2|-18.8|-36.3|

Source: Unicef TransMONEE database (2002). (*) Output-Employment growth difference Since the second half of the 1990s and following the stabilization period, the situation has partly reversed. Output growth has been significant and consistent for all transitional economies including the CIS-7 and the employment ratio growth continues to be negative, although less negative. The result is increased productivity. The productivity gains made in recent years have, in turn, allowed wages to grow and the growth has been larger the larger had been the fall during the recession period. The CIS-7 in this respect have outperformed other transitional economies although the starting point was the lowest (table 1.4 and figure 1.3). Yet, real wages are still below the pretransition level and _we could reasonably expect that employment growth will hardly start before wages will have regained the pre-transition level_ . In fact, we should expect wages to by-pass such threshold before employment takes off given the already existing low labor productivity and labor hoarding during the pre-transition period.<sup>9</sup>

**Table 1.4 The Output-Employment Gap During the Growth Period**

||GDP growth (%)|Empl. Ratio growth (%)|O-E diff|Real wages growth|
|---|---|---|---|---|
|CIS-7 (1996-2001)|27.1|-5.9|33.0|67.0|
|Other CIS (1997-2001)|27.5|-2.2|29.7|10.5|
|Non CIS (1994-2001)|26.5|-11.7|38.2|37.0|

Source: Unicef TransMONEE database (2002) More scarce and less clear to interpret are figures on _unemployment_ . _Registered unemployment_ has been generally low as compared to other transitional economies. All countries reformed the labor exchange systems in the early 1990s and started to register the unemployed and offer income support and active labor market programs. However, the unemployment compensation on offer has been generally poor and declining over the 1990s with increasing restrictions for registration while services provided could not be of great support when labor demand was very depressed. Low registered unemployment figure reflect the relative value of the income compensation and services on offer rather than the actual labor market status of potential applicants.

> 9 The question of why wages are now growing with excess supply of labor in the market is related to labor market segmentation which will be explored later in the paper.

10