# **_Labor market (Table 7 C)_**

Table 7C focuses on the market for labor, dividing up households into groups characterized by wage employment, entrepreneurial activities, subsistence activities, and non-employment (retirement, unemployment, and so on).<sup>13</sup> The choice of this partition reflects what is important in transition economies and has been developed by one of the authors of this paper for the first time in World Bank (2005)<sup>14</sup> .

A few broad generalizations emerge. First, the effects of restructuring on income distribution operated not so much through the relative size of between-sector differences, but through the variation in the role of “employment/non-employment” types and inequality within the group of unemployed or marginally employed. Table 7 C shows that, even by 2002-3, as much as 20 to 40 percent of the population in Kazakhstan, Georgia and Moldova were in families completely reliant on subsistence farming and that, in Georgia and Moldova, a further 10 percent had no employed family members. Over the period of analysis more people moved into employment and fewer people remained in subsistence employment, but, with the exception of Tajikistan, Russia and Moldova, the shift was not large enough. The allocation of population between employment as a whole and unemployment in more advanced economies is comparatively steadier, suggesting that the transition-induced reallocation is much farther advanced there.

Second, the growth of entrepreneurship has been a major contributor to an increase in inequality in many countries. This is because as a group it is associated with higher inequality in outcomes than wage employment or subsistence activities, and its share in total population has generally been rising. There are however exceptions to this finding, notably Georgia, where a decline in the share of households characterized by entrepreneurial activity has resulted in a falling contribution of this group to inequality.

Third, the rise in the contribution to inequality of the non-employed (transfer recipients) is an important factor behind rising inequality, particularly in the advanced transition economies of Central Europe but in Romania as well. The rise is owed to growing 13 The definitions used are as follows. Dependence on: (i) wage employment: no working members who are self-employed and minimal income from self-production (<5 percent); (ii) entrepreneurial activities: at least one adult in self-employment but minimal income from self-production (<5 percent); (iii) subsistence activites: at least one adult in self-employment and significant income from self production (>5 percent); (iv) non-employment : no adult in employment or self-employment.

14 It should be noted that the values reported for the Theil entropy index for per capita consumption in Table 7C is different from that in Table 7A and 7C. This is because labor market information is available for a number of countries often only for a subset of households and/or for a subset of time periods, e.g., only one quarter of a year. Furthermore, they are subject to a much larger non-response than location or education levels because income information is needed to establish labor market types. Thus for Living Standards Measurement Surveys (LSMS)-type data of good quality, there is little or no discrepancy but for others it is large. Most figures and directions of change are similar, with the exception of Hungary, where labor market information in poorly reported in household budget surveys.

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