Economic Restructuring, Unemployment, and Growth in a Transition Economy

This paper develops a model of the process of reallocation of labor from the state sector to the private sector. When growth is exogenously determined, we show that in the initial stages of transition unemployment will rise over time. After a critical stage in the transition process, restructuring is accompanied by a decline in unemployment. When growth is endogenously determined, and human capital is acquired by learning-by-doing, we show that whether restructuring eventually occurs is determined by the level of human capital in the private sector and the rate of unemployment. The effects of various shocks and government policies in affecting the costs, speed, and eventual outcome of restructuring are analyzed.Economic growth;Labor;Unemployment;Economic models;employment, unemployment rate, unemployment benefits, private sector employment, employment subsidy, unemployed, rate of unemployment, social insurance, initial unemployment, decline in unemployment, aggregate unemployment, increasing unemployment, aggregate unemployment rate, aggregate employment, equilibrium unemployment, bargaining, unemployment declines, effect of unemployment, employment opportunities, welfare costs, unemployment increases, share of employment, unemployed workers, labor demand, effects of unemployment, involuntary unemployment, urban unemployment, rates of unemployment, natural rate of unemployment