Labor reallocation and firm growth: Benchmarking transition countries against mature market economies

Mi a, P adeep; Mu a ye , Alexande ; Scha e , Ma k E. A icle Labo ealloca ion and i m g ow h: Benchma king ansi ion coun ies agains ma u e ma ke economies IZA Jou nal o Labo & De elopmen P o ided in Coope a ion wi h: IZA – Ins i u e o Labo Economics Sugges ed Ci a ion: Mi a, P adeep; Mu a ye , Alexande ; Scha e , Ma k E. (2014) : Labo ealloca ion and i m g ow h: Benchma king ansi ion coun ies agains ma u e ma ke economies, IZA Jou nal o Labo & De elopmen , ISSN 2193-9020, Sp inge , Heidelbe g, Vol. 3, pp. 1-22, h ps://doi.o g/10.1186/2193-9020-3-13 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/152388 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h p://c ea i ecommons.o g/licenses/by/4.0/ ORIGINAL ARTICLE Open Access Labo ealloca ion and i m g ow h: benchma king ansi ion coun ies agains ma u e ma ke economies P adeep Mi a 1 , Alexande Mu a ye 2,4 and Ma k E Scha e 3,4,5* * Co espondence: [email p o ec ed] 3 School o Managemen and Languages, He io -Wa Uni e si y, Edinbu gh EH14 4AS, UK 4 Ins i u e o he S udy o Labo (IZA), Bonn, Ge many Full lis o au ho in o ma ion is a ailable a he end o he a icle Abs ac This pape uses i m-le el su ey da a o s udy labo ealloca ion and i m g ow h in he ansi ion coun ies o e 1996–2005, including benchma king agains de eloped ma ke economies. The da a shows apid g ow h o he new p i a e sec o and o he mic o- and small- i m sec o s, wi h he size dis ibu ion o i ms mo ing owa ds he pa e n obse ed in compa able su eys o de eloped ma ke economies. Th oughou , he egional pa e ns sugges g ea e con e gence in he ansi ion coun ies ha joined he Eu opean Union in 2004 han in he o he , lowe -income ansi ion economies. We also ind e idence o Kuzne -Chene y ype s uc u al change ac oss sec o s. JEL codes: L11, O12, P31. Keywo ds: T ansi ion; Con e gence; En e p ise es uc u ing; Labo ealloca ion 1. In oduc ion To use he e minology o classical g ow h heo y, he pe iod o socialism pu he ansi ion coun ies (TEs) o he pa h o “con e gence”wi h, o “ca ching up” o, he ma u e o de eloped ma ke economies (DMEs). The gap in pe capi a ou pu be ween cen ally planned economies and ma u e ma ke economies s opped closing in he 1970s and 1980s. The unde pe o mance o he cen ally planned economies was a key ac o ha igge ed he dissa is ac ion wi h cen al planning and ma ke socialism and he mo e om plan o ma ke in Cen al and Eas e n Eu ope and he o me USSR. The expec a ion was ha he e u n o he ma ke would pu hese coun ies on o a g ow h pa h ha would lead e en ually o con e gence wi h he ma u e ma ke economies ope a ing a he wo ld echnological on ie . Impo an ly, such ca ching-up a he agg ega e le el may be decomposed in o changes (o con e gence) a lowe le els, in pa icula , con e gence in echnology and p oduc i i y and con e gence in economic s uc u e. Fi s , he inhe en ine iciencies o cen al planning implied lags in inno a ion and di usion o echnology, esul ing in a i ual s agna ion in he 1980 and “equilib ium echnological gap”(Gomulka 1986). Abandoning cen al planning would enable adop ion o imp o ed echnology and managemen p ac ices and enable he esump ion o ca ching-up. Second, a he onse o he ansi ion, he coun ies o Eas e n Eu ope and Cen al Asia looked e y © Mi a e al.; licensee Sp inge . This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0), which pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly c edi ed. Mi a e al. IZA Jou nal o Labo & De elopmen 2014 2014, 3:13 h p://www.izajold.com/con en /3/1/13 di e en om he ma ke economies a simila le els o income in e ms o endowmen s and he s uc u e o economic ac i i y: la ge bu low p oduc i i y indus ial sec o s, small ag icul u al sec o s ha would be mo e ypical o iche , indus ialized coun ies, and small se ices sec o s. I was expec ed ha he ansi ion p ocess would gene a e g ow h by ealloca ing ac o s away om he excessi ely-la ge indus ial sec o and in o he ma ke se ices ha he cen al planne s had ep essed (Döh n and Heilemann 1996; Raise e al. 2004). The p ocess o economic ansi ion, which in he long un mani es s i sel in imp o ed mac o indica o s, should he e o e be isible in mo e immedia e indica o s a he mic o-le el, which allow obse ing he “mechanics”o he p ocess (Ca lin e al. 2013). Indeed, p oduc i i y g ow h and ealloca ion a he i m le el unde lie bo h ypes o p oduc i i y-d i en con e gence in ansi ion economies. Ine icien s a e-owned indus ial i ms we e expec ed o downsize; new p i a e i ms would sp ing up, illing ma ke niches ha we e neglec ed by he cen al planne s; i ms would adop p o en Wes e n echnology, p oduc ion me hods, and p oduc s anda ds; bo h new p i a e i ms and p i a ized s a e-owned i ms would see e iciency imp o emen s d i en by he incen i es b ough by p i a e owne ship. The e is a la ge li e a u e ha deals wi h a ious aspec s o ealloca ion a he i m le el in he ansi ion coun ies. The bulk o his li e a u e ocuses on labo ealloca ion as he mos accu a e and eliable indica o o changes a he mic o-le el. One o he i s such s udies is Konings e al. (1994), based on comp ehensi e da a om manu ac u ing i ms in Poland in he ea ly ansi ion. In ha s udy, he au ho s ind a la ge d op in ne employmen in s a e-owned i ms d i en by a jump in he job des uc ion a e and a disp opo iona e job c ea ion in he p i a e sec o . In addi ion, hey ind ha small i ms appea o be conside ably mo e dynamic han la ge i ms. Simila esul s indica ing ha small and new p i a e i ms con ibu e disp opo iona ely o job c ea ion while s a e-owned i ms a e esponsible o mos o he job des uc ion a e epo ed o Bulga ia, Hunga y and Romania (Bilsen and Konings 1996), he Czech Republic (Ju ajda and Te ell 2002), and Es onia (Hal iwange and Vodopi ec 2002). In e es ingly, he s udy by Ju ajda and Te ell (2003), which con as s he expe ience o Es onia and he Czech Republic, wo coun ies ha had qui e dissimila ansi ion pa hs wi h a apid des uc ion o p e-exis ing i ms in he o me and a g adual con ac ion o he old sec o in he la e , inds ha he g ow h o small s a -up i ms is simila in he wo coun ies 1 . The impo ance o new p i a e business (as compa ed o he es uc u ing o he exis ing i ms) o a success ul ansi ion is also emphasized in McMillan and Wood u (2002). Ano he impo an conclusion om he li e a u e is ha he pa e ns o employmen g ow h, job c ea ion and job des uc ion a y o e he ansi ion pe iod: job des uc ion domina es job c ea ion in he ea ly ansi ion pe iod, bu he magni ude o he wo p ocesses con e ges a he la e s ages. In pa icula , al eady by 1995 he job ealloca ion a es in he CEE coun ies a e simila o hose in ma u e capi alis economies (abou 20 pe cen ) wi h oughly equal job c ea ion and des uc ion a es (Da is and Hal iwange 1999) 2 . Mo e ecen ly, Ea le (2012) e isi s he magni ude and de e minan s o he labo ma ke lows associa ed wi h he all in Romanian indus ial employmen in he ea ly ansi ion. On he backg ound o a la ge d op in agg ega e indus y employmen , wi h Mi a e al. IZA Jou nal o Labo & De elopmen Page 2 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 declines in each o he disagg ega ed wo-digi sec o s, subs an ial g oss lows in bo h di ec ions a e documen ed. Wo ke s om he p i a e sec o appea o ha e a g ea e p obabili y o exi ing hei indus y, as well as highe p obabili ies o inding jobs in se ices, as compa ed wi h wo ke s in s a e-owned companies. Jackson and Mach (2009) s udy ealloca ion o labo in Poland o e he 1988–1998 pe iod. They documen job losses in s a e-owned i ms and job c ea ion in new p i a e i ms as dominan ends in employmen dynamics, o he han exi om he labo o ce. A signi ican sha e o his in ol es a spell o unemploymen o exi om he labo o ce be o e ob aining a new job in he p i a e sec o . Dong and Xu (2009) examine he pa e ns and de e minan s o he labo es uc u ing p ocess in China be ween 1998 and 2002. They documen subs an ial labo e enchmen in he public sec o . In con as o ansi ion coun ies o Cen al and Eas e n Eu ope, China has expe ienced a mo e synch onized pace o job c ea ion and des uc ion and highe a es o excess job ealloca ion, al hough e en he e a la ge chunk o he displaced wo ke s had ex emely long spells o unemploymen o pe manen ly le he labo o ce 3 . Despi e hese nume ous con ibu ions, he e idence on labo ealloca ion and i m g ow h –de ined as ei he employmen o sales g ow h –in he ansi ion coun ies emains agmen ed and incomple e. In pa icula , he e a e lacunas in e ms o bo h coun y co e age and ime co e age, and mo e impo an ly in e ms o compa ing di e en ansi ion coun ies wi h each o he as well as wi h ma u e ma ke economies. While se e al s udies ha e no ed con e gence o he ansi ion coun ies wi h ma u e ma ke economies, e.g. in e ms o he size dis ibu ion o i ms (Ju ajda and Te ell 2003) and a es o job des uc ion and c ea ion (Faggio and Konings 2003), he e idence o such con e gence emains sca ce. In his pape we use c oss-coun y i m-le el da a o analyze he con e gence p ocess in he ansi ion economies. We ask se e al esea ch ques ions. Wha a e he pa e ns o labo ealloca ion and i m g ow h in he ansi ion coun ies? To wha ex en a e he di e ences in he employmen g ow h a es obse ed ac oss egions due o he di e ences in he endowmen s o he espec i e economies –speci ically, owne ship, sec o al dis ibu ion, and size o i ms? O do hey s em om di e en ela ionships be ween hese cha ac e is ics and i m g ow h ac oss he egions? Fo example, we expec ha “ adi ional”(s a e-owned and p i a ized) i ms will con ibu e less o employmen g ow h han he new p i a e sec o . The sec o al dis ibu ion o employmen ac oss adi ional and new p i a e i ms is di e en in he EU8 coun ies 4 and in he CIS coun ies. How much o he di e ence in he employmen g ow h a es be ween he wo g oups o economies should we a ibu e o ha ing di e en employmen sha es o adi ional i ms? And how much should we a ibu e o he ac ha he employmen g ow h a es o adi ional i ms a e di e en in hese wo g oups o economies, e lec ing di e en p og ess in en e p ise es uc u ing? To add ess hese issues, we ake ad an age o he da a om he Business En i onmen and En e p ise Pe o mance Su eys (BEEPS) which a e la ge-scale su eys o i ms ha ha e been implemen ed in he ansi ion coun ies since he la e 1990s. In pa icula , we use a se ies o h ee snapsho s o i ually all ansi ion economies in 1999, 2002 and 2005. The i s yea o he BEEPS su eys is 1999, and i happens also o be he i s pos - inancial c isis yea , when he ans o ma ional ecession is mo e o less o e , and g ow h s a s ac oss he egion. We a e able o analyze six yea s o change, con e gence and Mi a e al. IZA Jou nal o Labo & De elopmen Page 3 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 g ow h. In addi ion, we ha e BEEPS da a om de eloped and cohesion Eu ope (Ge many, Spain, G eece, I eland, Po ugal) collec ed in 2004/05. This allows us o benchma k he TEs agains es ablished ma ke economies in 2004/05, be o e he dis up ion o he wo ld inancial c isis ha s a ed in 2008. The majo s eng h o ou s udy is a comp ehensi e analysis o i m es uc u ing in i ually all ansi ion coun ies and o e a long pe iod o ime is. In addi ion, we a e he i s , o ou bes knowledge, o benchma k he pa e ns o labo ealloca ion and i m g ow h in ansi ion coun ies agains de eloped economies using compa ible da a. The use o decomposi ion echniques in he analysis o labo ealloca ion and i m g ow h is ano he dis inc ea u e o ou analysis. The pape is o ganized as ollows. Sec ion 2 desc ibes he su ey and da a as well as in oduces he coun y classi ica ion we use. Sec ion 3 desc ibes he me hodological app oach chosen. Sec ion 4 p esen s e idence on labo ealloca ion and i m g ow h om he BEEPS su eys. Sec ion 5 concludes. 2. The su ey and da a 2.1. The su ey Ou empi ical analysis is based on he da a om he Business En i onmen and En e p ise Pe o mance Su eys (BEEPS) ha ha e been conduc ed by he Wo ld Bank and EBRD e e y h ee yea s since 1999 5 . The main pu pose o he su eys was o assess he en i onmen o p i a e en e p ise and business de elopmen as well as o s udy en e p ise adjus men and es uc u ing. The 1999 su ey was adminis e ed o app oxima ely 4,100 i ms in i ually all ansi ion coun ies o Eas e n Eu ope and Cen al Asia. The sample size was la e ex ended o o e 6,500 i ms in 2003 and nea ly 11,000 i ms in 2005 (see Table 1). In addi ion, he BEEPS we e ex ended in 2004/05 o include a ange o compa a o coun ies om Wes e n Eu ope and Eas Asia (Ge many, G eece, Po ugal, Sou h Ko ea and Vie nam we e co e ed in 2004 and I eland and Spain in 2005). The BEEPS we e o iginally planned as a epea ed c oss-sec ional su ey. Howe e , s a ing om he hi d wa e (2005), some o he p e iously sampled i ms we e e-in e iewed, which esul s in a ( es ic ed) panel sub-se o he da a 6 . Al hough he BEEPS su ey ins umen has been modi ied each ime i was implemen ed, he ange o ques ions ha emained consis en ac oss su eys is subs an ial, especially in 1999, 2002, and 2005. In 2008, he e was a signi ican change in he su ey ins umen which makes mo e ecen da a no ully compa able wi h he da a om he ea lie wa es. Su ey samples we e cons uc ed by andom sampling om a na ional egis y o i ms o equi alen wi h o e sampling o some addi ional ca ego ies o i ms o ensu e easonable subsample sizes. The i ms co e ed a e d awn om indus y and se ices 7 , and, like he popula ion o i ms in coun ies a ound he wo ld, a e mos ly SMEs (see Table 2). A majo i y o he i ms su eyed (60% in 1999, ising o 75% in 2005) a e new p i a e sec o i ms, i.e., hey we e p i a e om he poin o s a up. P i a ized i ms make up abou 15-25% o he sample, and he emaining 10-15% we e s a e-owned en e p ises (SOEs). The sha es o bo h p i a ized and SOEs in he BEEPS ansi ion samples ha e been alling o e ime. The samples om he non- ansi ion ma ke economy compa a o coun ies include e y ew SOEs and p i a ized i ms, which means ha ou benchma k is he ma ke economy p i a e sec o . Mi a e al. IZA Jou nal o Labo & De elopmen Page 4 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 An impo an sampling es ic ion in he BEEPS is ha only i ms ha ha e been in business o a leas h ee ull yea s a e conside ed. Fo example, he 2005 wa e excludes i ms ha we e es ablished in 2002 o la e . This es ic ion allows o include in he ques ionnai es a se o 3-yea e ospec i e ques ions ha help in acing changes in i m dynamics 8 . I s main disad an age is ha he su ey may sample “be e ” i ms, hose able o su i e o a leas h ee yea s. Such a su i o bias may be pa icula ly Table 1 BEEPS composi ion by coun y (numbe o i ms sampled) Coun y 1999 2002 2004 2005 To al Albania 163 170 204 537 A menia 125 171 351 647 Aze baijan 137 170 350 657 Bela us 132 250 325 707 Bosnia & He zego ina 192 182 200 574 Bulga ia 130 250 300 680 C oa ia 127 187 236 550 Czech Republic 149 268 343 760 Es onia 132 170 219 521 Geo gia 129 174 200 503 Ge many 1197 1197 Wes 811 Eas 386 G eece 546 546 Hunga y 147 250 610 1007 I eland 501 501 Kazakhs an 147 250 585 982 Ko ea 598 598 Ky gyzs an 132 173 202 507 La ia 166 176 205 547 Li huania 112 200 205 517 Macedonia 136 170 200 506 Moldo a 139 174 350 663 Poland 246 500 975 1721 Po ugal 505 505 Romania 125 255 600 980 Russia 552 506 601 1659 Se bia & Mon eneg o 250 300 550 Slo akia 138 170 220 528 Slo enia 125 188 223 536 Spain 606 606 Tajikis an 176 200 376 Tu key 150 514 557 1221 Uk aine 247 463 594 1304 Uzbekis an 126 260 300 686 Vie nam 500 500 To al 4104 6667 3346 10762 24879 Mi a e al. IZA Jou nal o Labo & De elopmen Page 5 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 impo an o small s a ups in he p i a e sec o , among which he exi a e is usually high. In each i m, ace- o- ace in e iews we e conduc ed wi h he “pe son who no mally ep esen s he company o o icial pu poses, ha is who no mally deals wi h banks o go e nmen agencies/ins i u ions”. In small i ms, in e iews usually in ol ed one esponden . In la ge en e p ises, he p inciple esponden o en had o consul wi h accoun an s and pe sonnel manage s, especially in he case when de ailed da a abou he i m (such as sales and employmen ) we e eques ed 9 . The main s eng h o he su ey, om he poin o iew o his pape , a e he use o a consis en su ey ins umen ac oss i ually all ansi ion coun ies and ange o ma ke economy compa a o s, and, o he ansi ion coun ies, o e a subs an ial pe iod o ime. The main weakness o he BEEPS is he consequence o he wide co e age and ini e budge s: he sample sizes o indi idual coun ies a e ela i ely small. E en in he bigges BEEPS ound in 2005, mos coun y samples ha e ewe han 400 i ms. In he i s BEEPS su eys in 1999, a ypical coun y sample had abou 150 i ms. 2.2. The da a Due o he change in he su ey ins umen in 2008, we ha e decided o use he i s h ee wa es o he su ey –1999, 2002 and 2005. The e ospec i e ques ions allow us o co e almos a decade o he ansi ion, om 1996 o 2005, in almos all he ansi ion coun ies o Cen al and Eas e n Eu ope and he o me So ie Union. In addi ion, we use da a om de eloped ma ke economies o Wes e n Eu ope (Ge many, G eece, I eland, Po ugal, and Spain) collec ed in a special wa e o he su ey in 2004/2005 10 . Table 1 shows he composi ion o he BEEPS by coun y and yea o implemen a ion. Small sample sizes o indi idual coun ies makes analysis a he coun y le el a p oblema ic endea o . Indeed, oo g ea a deg ee o disagg ega ion in he analysis would esul s in sys ema ic di e ences ac oss coun ies and o e ime being swamped by noise in he da a. We he e o e agg ega e ac oss coun ies in much o ou analysis. Ou agg ega ion scheme sepa a es coun ies acco ding o posi ion in Eu ope a he ime o he mos ecen BEEPS su eys in 2005, and acco ding o income as o 1999. We conside he ollowing coun ies and g oups o coun ies: Table 2 BEEPS composi ion by i m size Fi m size 1999 2002 2004 2005 To al Mic o 1093 2241 1569 4145 9048 % 26.68 33.77 46.89 38.53 36.43 Small 905 2242 1038 3499 7684 % 22.09 33.79 31.02 32.52 30.94 Medium 1171 1126 362 1873 4532 % 28.58 16.97 10.82 17.41 18.25 La ge 928 1027 377 1242 3574 % 22.65 15.48 11.27 11.54 14.39 To al 4097 6636 3346 10759 24838 % 100.00 100.00 100.00 100.00 100.00 No e: Fi m size ca ego ies a e de ined on he basis o employmen , mic o (1–9 employees), small (10–49), medium (50–199) and la ge (200+ employees). The able shows he numbe o i ms in each size ca ego y as well as he pe cen age o i ms in he espec i e ca ego y in each wa e o he su ey. Mi a e al. IZA Jou nal o Labo & De elopmen Page 6 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 I. Wes Ge many II. Cohesion coun ies (G eece, I eland, Po ugal, and Spain) III. EU8 (new membe s as o May 2004) ( he Czech Republic, Es onia, Hunga y, La ia, Li huania, Poland, he Slo ak Republic, and Slo enia) IV. Lowe middle income ansi ion coun ies (Albania, Bosnia and He zego ina, Bulga ia, Macedonia, Romania, Se bia and Mon eneg o, Bela us, Kazakhs an, he Russian Fede a ion, and Uk aine) a. SEE (Albania, Bosnia and He zego ina, Bulga ia, Macedonia, Romania, and Se bia and Mon eneg o) b. Middle income CIS (Bela us, Kazakhs an, he Russian Fede a ion, and Uk aine) V. Low income CIS (A menia, Aze baijan, Geo gia, Ky gyzs an, Moldo a, Tajikis an, Tu kmenis an, and Uzbekis an) We will some imes e e o G oups I and II as he “p e-2001 EU”o “de eloped ma ke economies”(DMEs), and g oups III-V as “ ansi ion economies”(TEs). The income classi ica ion uses he s anda d Wo ld Bank scheme based on GNI pe capi a in 1999 (see Table 3). The di ision be ween I, II, III and IV is based on EU s a us as o 2005, bu also ma ches GNI pe capi a in 1999 almos exac ly. The di ision be ween IV and V is om he WB income classi ica ion. C oa ia is an ou lie –loca ed in Sou h-Eas e n Eu ope, his coun y has GNI pe capi a ha is subs an ially highe han ha o he o he coun ies o he egion –and is he e o e omi ed om he analysis. Eas Ge many as well as Tu key, Ko ea and Vie nam we e also included in he BEEPS 2004–05 su eys, bu hese coun ies a e oo he e ogeneous o agg ega ion; we omi hem om he agg ega ion scheme and analysis 11 . 3. Me hodology In his s udy, we ely on wo p incipal me hods o analysis. Fi s , we use desc ip i e analysis o he da a o p oduce a gene al pic u e o labo ealloca ion and i m g ow h in he ansi ion and compa a o coun ies. The desc ip i e analysis is ins umen al no only o highligh ing he di e ences be ween coun ies and g oups o coun ies, bu also o iden i ying he ime ends in he key a iables o in e es . We hen use decomposi ion analysis o employmen g ow h o p oduce a mo e de ailed pic u e o egional pa e ns and con e gence in i m g ow h. The decomposi ion me hod, commonly used in labo economics, a emp s o a ibu e he di e ence in he dependen a iable ac oss wo g oups o obse a ions in o he di e ence in he explana- o y a iables (endowmen s), he di e ence in he ela ionship be ween he endowmen s and he dependen a iable (coe icien s), and a emaining ac o which is he in e ac ion be ween endowmen s and coe icien s. In pa icula , a di e en ial can be decomposed as ollows: R¼y1−y2¼x1−x2 ðÞβ2þx2β1−β2  þx1–x2 ðÞβ1−β2  ¼EþCþCE whe e R deno es he aw di e en ial be ween he means o he dependen a iable y measu ed o wo g oups o obse a ions, xis he ow ec o o he means o he explana o y a iables x 1 ,…,x k , and β 1 and β 2 he column ec o s o he coe icien s o he wo g oups ob ained in he eg ession analysis 12 . In he inal pa o he exp ession, E = Endowmen s, C = Coe icien , and CE = In e ac ion o C & E. The ques ion ha Mi a e al. IZA Jou nal o Labo & De elopmen Page 7 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 usually comes up is how o alloca e CE. In he Oaxaca-Blinde decomposi ion, i is alloca ed along wi h coe icien s, so ha Explained = Endowmen s and Unexplained = Coe icien s + In e ac ion. Howe e , CE can also be alloca ed o E, o e en di ided be ween E and C. In wha ollows we alloca e he in e ac ion e ec along wi h he Table 3 GNI pe capi a in he BEEPS coun ies Coun y GNI pe capi a 1999, A las me hod, cu en USD GNI pe capi a 2004, A las me hod, cu en USD Rank in 1999 Rank in 2004 Change, 1999-2004 Tajikis an 280 280 LI LI Ky gyz Republic 300 400 LI LI Vie nam 370 550 LI LI Moldo a 410 710 LI LI Aze baijan 460 950 LI LMI ↑ A menia 490 1120 LI LMI ↑ Geo gia 620 1040 LI LMI ↑ Tu kmenis an 670 1340 LI LMI ↑ Uzbekis an 720 460 LI LI Uk aine 840 1260 LMI LMI Albania 930 2080 LMI LMI Bosnia & He zego ina 1210 2040 LMI LMI Kazakhs an 1250 2260 LMI LMI Bulga ia 1410 2740 LMI LMI Romania 1470 2920 LMI LMI Macedonia, FYR 1660 2350 LMI LMI Russian Fede a ion 2250 3410 LMI UMI ↑ La ia 2430 5460 LMI UMI ↑ Bela us 2620 2120 LMI LMI Li huania 2640 5740 LMI UMI ↑ Tu key 2900 3750 LMI UMI ↑ Es onia 3400 7010 UMI UMI Slo ak Republic 3770 6480 UMI UMI Poland 4070 6090 UMI UMI C oa ia 4530 6590 UMI UMI Hunga y 4640 8270 UMI UMI Czech Republic 5020 9150 UMI UMI Ko ea, Rep. 8490 13980 UMI HI ↑ Slo enia 10000 14810 HI HI Po ugal 11030 14350 HI HI G eece 12110 16610 HI HI Spain 14800 21210 HI HI I eland 21470 34280 HI HI Ge many 25620 30120 HI HI Se bia & Mon eneg o n/a 2620 LMI LMI No e: da a om he Wo ld Bank. LI s ands o low-income coun ies wi h GNI pe capi a less han 826 (755 in 1999), LMI s ands o lowe middle income coun ies wi h GNI pe capi a mo e han 826 (755 in 1999) bu less han 3,256 (2,995 in 1999), UMI s ands o uppe middle-income economies wi h GNI pe capi a mo e han 3,256 (2,995 in 1999), bu less han 10066 (9266 in 1999), and HI deno e high income economies wi h GNI pe capi a mo e han 10,066 (9,266 in 1999). Mi a e al. IZA Jou nal o Labo & De elopmen Page 8 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 di e ence in endowmen s in p i a ized i ms, which also con ibu es o as e employ- men g ow h in he EU8. The majo nega i e con ibu ion o as e g ow h in ha e- gion is he coe icien e ec o i m size in he p i a e sec o , which may indica e ma u a ion o new p i a e i ms o he exhaus ion o g ow h oppo uni ies due o in- c eased compe i ion (see also he discussion in he nex sec ion below on compe i ion). O e all, we obse e a kind o ca ching-up s o y: he new p i a e sec o boom is u he ad anced and slowing down in he EU8 coun ies, bu he downsizing o he s a e sec o is also u he ad anced and slowing down. The esul s o a e age employmen g ow h (see Figu e 4) a e simila , excep o much less p onounced owne ship e ec s. A compa ison o he EU8 and CIS coun ies is shown in Figu es 5 and 6. Quali a- i ely, he esul s a e ema kably simila o wha we ha e ound in he compa ison o he EU8 e sus SEE coun ies. In pa icula , he p i a e sec o is g owing as e in he CIS han in he EU8 g oup, which is o a la ge ex en a consequence o a much as e sec o al g ow h (in pa icula , in manu ac u ing) a he han a size e ec . Gi en he ema kable simila i ies in he las wo compa isons, i is o in e es o benchma k he SEE g oup wi h he CIS coun ies. The esul s o his decomposi ion a e shown in Figu es 7 and 8. The weigh ed/agg ega e employmen s o y is ha he SEE and CIS new p i a e sec o s a e almos iden ical; he big di e ence is he much bigge downsizing o he SOE and p i a ized sec o s in SEE. The unweigh ed/a e age i m s o y is ha SEE and CIS look simila ac oss all sec o s. The obse ed di e ence be ween he weigh ed and unweigh ed s o ies implies ha he SOE/p i a ized downsiz- ing in SEE is mo e concen a ed in he la ge i ms. The ca ching up s o y e iden ly does no hold in he CIS, since inasmuch as i is less ad anced in he ansi ion com- pa ed o he SEE g oup, he downsizing o he s a e sec o would ha e been expec ed o ha e been s onge . The no able di e ences be ween agg ega e employmen g ow h and mean i m em- ploymen g ow h ha we ha e obse ed in he abo e analysis sugges a close look a he size dis ibu ion o i ms is wa an ed. An indica ion o con e gence in his exe cise would be an inc ease in employmen in small i ms ela i e o employmen in la ge i ms in he ansi ion economies. Indeed, planned economies had e y ew small i ms, and he small i m sec o would be expec ed o g ow apidly du ing he ansi ion Figu e 5 Decomposi ion o agg ega e employmen g ow h: New EU s CIS. Mi a e al. IZA Jou nal o Labo & De elopmen Page 15 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 pe iod o ill his gap (see, e.g., Wo ld Bank 2005 o de ailed discussion o he Russian case). We would he e o e expec o ind ha he size dis ibu ion is e ol ing owa ds he pa e n o he de eloped ma ke economies, and ha he new EU membe s ha e caugh up mo e han he poo e TEs. This is indeed wha we see in he BEEPS da a. Figu e 9 shows he dis ibu ion o i m size in Wes Ge many and he cohesion coun ies, he EU8 coun ies and he o he TEs, by ou b oad size ca ego ies: mic o (1–9 employees), small (10–49), medium (50–199) and la ge (200+ employees). Small and mic o i ms a e mos p e alen in he de eloped ma ke economies o he EU, and leas common in he non-EU TEs, wi h he EU8 membe s occupying an in e media e posi ion. Figu e 10 shows he size dis i- bu ion o i ms in he new EU8 mo ing s eadily owa ds he de eloped ma ke econ- omy pa e n o la ge numbe s o mic o and small i ms, and by 2005 he dis ibu ion is close o ha obse ed in Wes Ge many and he cohesion g oup. Figu e 11 shows he same pa e n in he poo e TEs, bu hese coun ies s a in 1999 om a posi ion o Figu e 6 Decomposi ion o a e age i m g ow h: New EU s CIS. Figu e 7 Decomposi ion o agg ega e employmen g ow h: SEE s CIS. Mi a e al. IZA Jou nal o Labo & De elopmen Page 16 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 e en ewe small i ms, and al hough he small i m sec o g ows be ween 1999 and 2005, in 2005 i is s ill some dis ance om he ma ke economy benchma k. As no ed al eady, ano he es o he con e gence hypo hesis is o use da a on ealloca ion ac oss indus ial sec o s in he cou se o ansi ion, whe e we would expec o see a Kuzne s-Chene y- ype pa e n 19 . Raise e al. (2004), in a s udy o 20-odd ansi ion coun ies, di ide o al employmen in o b oad sec o s (ag icul u e, indus y, ma ke s se ices and nonma ke se ices), and show ha employmen sha es du ing he ansi ion ha e gene ally mo ed owa ds benchma ks calcula ed om a sample o ma ke economy compa a o s: in pa icula , he sha e o indus y has allen and he sha e o ma ke se ices has isen in all TEs. These pa e ns a e also e idenced in he ela i e g ow h a es o i m employmen and jobs in he BEEPS su eys, bu wi h a wis . The employmen g ow h eg essions o 1999, 2002 and 2005 show ha employmen in ade and se ices i ms has g own consis en ly as e han in manu ac u ing i ms in he EU8 coun ies 20 . The wis is ha , o he lowe -income TE coun y g oups (SEE and CIS), he di e en ial swi ches size and manu ac u ing i ms g ow as as as se ices i ms in 1996–99 and hen as e han se ices i ms in 1999–02 and 2002–05. When we look Figu e 8 Decomposi ion o a e age i m g ow h: SEE s CIS. Figu e 9 Size dis ibu ion in 2004–05. Mi a e al. IZA Jou nal o Labo & De elopmen Page 17 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 a agg ega e employmen g ow h (i.e., job g ow h), howe e , he pa e n is di e en o TEs as a whole –ne job g ow h is slowe in manu ac u ing h oughou he pe iod –which is consis en wi h he indings by Raise e al. (2004) 21 .Insho ,weha e e idence a he i m le el o wo di e en Kuzne s-Chene y- ype pa e ns. In he highe - income TEs, he lowe a e o employmen g ow h in manu ac u ing ela i e o se ices e lec s p ima ily a con e gence o ma ke economy benchma ks d i en by indus ial sec o s ha we e “ oo la ge”a he s a o ansi ion, and ma ke se ices sec o s ha we e “ oo small”. In he lowe -income TEs, he obse ed pa e n o ela i ely highe a es o employmen g ow h in manu ac u ing ela i e o se ices is consis en wi h a bigge impac o he s anda d Kuzne s-Chene y- ype pa e n in which, as a coun y de elops and p oduc i i y g ows, employmen in manu ac u ing i s inc eases and hen dec eases. In sum, he pic u e pain ed by he BEEPS da a is b oadly consis en wi h bo h he basic mac oeconomic ends in he egion, and wi h p e ious sec o al and i m-le el s udies: ollowing he “ ans o ma ional ecession”(Ko nai 1994) o he mid-1990s, TEs ha e been g owing, and a a as e a e han ha obse ed in he de eloped ma ke Figu e 10 E olu ion o size dis ibu ion in New EU coun ies. Figu e 11 E olu ion o size dis ibu ion in Non-EU TEs. Mi a e al. IZA Jou nal o Labo & De elopmen Page 18 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 economies –con e gence is unde way. The pa e n o g ow h a he coun y, sec o al and i m le el show mo e apid g ow h in he p i a e and especially new p i a e sec o s, mo emen in he size dis ibu ion o i ms owa ds he pa e n o la ge numbe s o small i ms as seen in de eloped ma ke economies, mo e e idence o con e gence in he new EU membe s han in he poo e TEs, and e idence as well o Kuzne -Chene y ype s uc u al change ac oss sec o s. 5. Conclusion The mo e om plan o ma ke in Cen al and Eas e n Eu ope and he o me USSR was o a la ge ex en d i en by he expec a ion ha he e u n o he ma ke would pu hese coun ies on o a g ow h pa h ha would lead e en ually o con e gence wi h he de eloped ma ke economies ope a ing a he wo ld echnological on ie . Mo e han wo decades a e he s a o he ansi ion p ocess, i is he igh ime o ask i such con e gence has indeed been aking place. Mos exis ing s udies o con e gence ocus ei he on he mac o aspec (con e gence in e ms o pe capi a GDP) o he mic o aspec (con e gence in i m p oduc i i y). Ou s udy belongs o he second g oup and ocuses on labo ealloca ion and i m g ow h. We use da a om se e al wa es o he BEEPS exe cise; due o a numbe o unique ea u es, hese da a a e pa icula ly app op ia e o s udying he p ocess o con e gence in he ansi ion economies. The BEEPS consis o a se ies o 3 snapsho s o i ually all ansi ion economies in 1999, 2002 and 2005 and co e s andom and ep esen a i e samples om hese coun ies. In addi ion, he 2005 su ey con ains i m le el da a om a numbe o de eloped ma ke economies, which makes i possible o di ec ly benchma k TEs agains hese economies. Ou analysis o i m g ow h, sec o al changes and changes in size dis ibu ion o i ms p o ides a clea pic u e o he con e gence p ocess. O e all, he BEEPS da a show a as e g ow h o i ms in he TEs compa ed wi h he de eloped ma ke economies. The pa e n o g ow h a he coun y, sec o al and i m le el shows mo e apid g ow h in he p i a e and especially new p i a e sec o s, mo emen in he size dis ibu ion o i ms owa ds he pa e n o la ge numbe s o small i ms as seen in de eloped ma ke economies, mo e e idence o con e gence in he new EU membe s han in he poo e TEs, as well as e idence o Kuzne -Chene y ype s uc u al change ac oss sec o s. Endno es 1 Mo e on di e en pa hs o labo ma ke adjus men in ansi ion coun ies see S ejna (1999) and Boe i and Te ell (2002). 2 A ho ough su ey o hese and o he ea lie s udies analyzing employmen g ow h, job c ea ion and des uc ion in he ansi ion economies is p o ided in Hal iwange e al. (2003). 3 We hank he e iewe o poin ing his ou . See also Giles e al. (2006). 4 The Czech Republic, Es onia, Hunga y, La ia, Li huania, Poland, he Slo ak Republic, and Slo enia. 5 De ails abou he su ey a e a ailable a h p://eb d-beeps.com/ (as accessed on Ap il 20, 2014). Mi a e al. IZA Jou nal o Labo & De elopmen Page 19 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 6 Fo example, he wo-wa e panel co e ing he yea s o 2002 and 2005 con ains abou 1,400 obse a ions. Due o he small numbe o obse a ions in he panel, we igno e his ea u e o he BEEPS in he analysis ha ollows. 7 A small numbe o i ms in ag icul u e, ishe y, o es y as well as in powe gene a ion in he 1999 BEEPS su ey a e classi ied in his pape as manu ac u ing. 8 The esponden s a e usually asked o gi e wo alues, as o he ime o he in e iew and 36 mon hs ago. This is, o example, he case o employmen . In some cases, hey a e asked o p o ide he g ow h a e (in eal e ms) o e he las 36 mon hs. This is he case o sales and o he inancial a iables, which, i eco ded in local cu encies, would be e y ha d o deal wi h in a c oss-coun y s udy. 9 See, e.g., he 2005 epo on su ey implemen a ion a ailable online a h p:// eb d-beeps.com/wp-con en /uploads/2013/09/beeps2005 1.pd (as accessed on Ap il 20, 2014). 10 No e ha he e ospec i e ques ions only allow us o gene a e h ee-annual g ow h a es o key a iables such as sales and employmen . This can lead o po en ial unde - es ima ion o he dynamic adjus men in a gi en coun y o sec o . Fo example, a small all in employmen o e h ee yea s in a pa icula i m may be caused by a la ge all in yea one, a la ge ise in yea wo and a ela i ely small all in yea h ee. We belie e, howe e , ha such p o iles a e e y unlikely and he bias om a wide han usual ime ho izon is no e y s ong. Impo an ly, his bias should be in he same di ec ion o bo h ansi ion and de eloped economies and is he e o e o lesse impo ance in compa a i e s udies such as ou s. 11 We admi ha he agg ega ion scheme may mask some impo an di e ences be ween coun ies om he same egion. Mos s ikingly is his in he case o SEE, whe e we ha e “baske cases”like Bosnia and He zego ina (which elied hea ily on EU unds) and Macedonia (which in he 1990s had a comple ely immobile labo ma ke wi h ex emely small job c ea ion, bu also wi h iny lows be ween labo ma ke s a es –see, e.g., Lehmann (2010)) and coun ies like Romania and Bulga ia. Howe e , as al eady no ed, he small sample sizes make i i ually impossible o conduc analysis a a mo e disagg ega e le el. 12 In he eg ession analysis, he dependen a iable is he g ow h a e o employmen , and he eg esso s a e a se o sec o dummy a iables, a size a iable (log employmen ), dummy a iables o s a e and p i a ized i ms, and he in e ac ion o he s a e and p i a ized dummies wi h he size a iable. 13 Job c ea ion a e (JCR) is de ined as he sum o all employmen gains in he expanding i ms in he economy di ided by o al employmen , job des uc ion a e (JDR) is he sum o all employmen losses in he con ac ing i ms di ided by o al employmen , job ealloca ion a e (JRR) is he sum o he wo (JCR + JDR) and job g ow h a e (JGR) is he di e ence be ween JCR and JDR. 14 This is pa icula ly ue o SEE coun ies. Al hough he numbe o i ms ha expanded employmen in his egion in 1996–1999 was a la ge han he numbe o i ms ha downsized, he JDR was conside ably la ge han he JCR. 15 These numbe s a e he p edic ed alues om he eg ession o employmen g ow h in he Cohesion coun ies on sec o al dummies and i m size a iable ( he owne ship a iables a e missing because he Cohesion sub-sample only includes new p i a e i ms). Mi a e al. IZA Jou nal o Labo & De elopmen Page 20 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 16 These numbe s a e he p edic ed alues om he eg ession o employmen g ow h in he new UE membe s on sec o al and owne ship dummies, i m size a iable, and i s in e ac ion wi h owne ship a iables. 17 S a e and p i a ized i ms a e pa icula ly la ge in he TEs wi h he esul ha hei slowe g ow h has a mo e dele e ious impac on agg ega e a he han a e age employ- men g ow h. 18 Wha is d i ing he smalle nega i e con ibu ions o he s a e and p i a ized sec o s in he decomposi ion o a e age as opposed o agg ega e g ow h is ha hese sec o s consis o i ms which a e ela i ely la ge and make a bigge nega i e con ibu- ion o agg ega es han o means. We can see his by compa ing he alues o “S a e” and “P i a ized”in he “Mean”columns in he weigh ed and unweigh ed esul s in he Addi ional ile 1. In he weigh ed esul s, hese a e he alues o agg ega e employmen in he sample, i.e., in he New EU sample, SOE + P i a ized = 0.360 + 0.255 = 61.5% o employmen ; in he SEE/CIS sample, SOE + P i a ized = 0.318 + 0.366 = 68.4% o employ- men . In he unweigh ed esul s, SOE + P i a ized = 0.078 + 0.092 = 17.0% o i ms in he New EU sample, and = 0.086 + 0.129 = 21.5% o i ms in he SEE/CIS sample. 19 See Kuzne s (1955, 1965) and Chene y and Taylo (1968), Chene y and Sy quin (1975). As ma ke economies de elop, hei s uc u e changes in a ious ways. In pa icula , he sha e o ag icul u e in GDP and employmen alls and he sha es o manu ac u ing and se ices inc ease. The sou ces o hese changes in he size o sec o s ha e been modeled by Row ho n and Ramaswamy (1997) amongs o he s as d i en by (exogenous) di e ences in p oduc i i y g ow h ac oss sec o s. Con e gence by he o me socialis economies in his con ex would gene a e g ow h by ealloca ing ac o s away om he excessi ely-la ge indus ial sec o and in o he ma ke se ices ha he cen al planne s had ep essed (Döh n and Heilemann 1996; Raise e al. 2004). 20 These and o he esul s discussed in his pa ag aph a e no shown in he pape , bu a e a ailable on eques om he au ho s. 21 The explana ion o his con as is as ollows: Raise e al. (2004) and o he s udies ha ha e looked a s uc u al change in his amewo k use sha es o o al employmen , whe eas he as e g ow h o manu ac u ing i ms ela i e o se ices i ms in he lowe -income TEs ha we epo is based on i m le el da a, and as al eady no ed, he changes in employmen in smalle i ms play a la ge ole in he la e because o he g ow h o he small i m sec o in TEs. Addi ional ile Addi ional ile 1: No es on he decomposi ion esul s. Compe ing in e es s The IZA Jou nal o Labo & De elopmen is commi ed o he IZA Guiding P inciples o Resea ch In eg i y. The au ho s decla e ha hey ha e obse ed hese p inciples. Responsible edi o : Jackline Wahba Au ho s’in o ma ion The i s e sion o his pape was w i en when Mi a was Chie Economis , Eu ope and Cen al Asia Region, Wo ld Bank and appea ed as “Con e gence in ins i u ions and ma ke ou comes: c oss-coun y and ime-se ies e idence om he BEEPS su eys in ansi ion economies”(Wo ld Bank Policy Resea ch Wo king Pape No. 4819). Views exp essed a e he au ho s’and do no necessa ily e lec hose o he Wo ld Bank. Mi a e al. IZA Jou nal o Labo & De elopmen Page 21 o 22 2014, 3:13 h p://www.izajold.com/con en /3/1/13 Au ho de ails 1 Wo ld Bank, Washing on, DC, USA. 2 S . Pe e sbu g S a e Uni e si y GSoM, Volkho sky pe . 3, S . Pe e sbu g 199004, Russia. 3 School o Managemen and Languages, He io -Wa Uni e si y, Edinbu gh EH14 4AS, UK. 4 Ins i u e o he S udy o Labo (IZA), Bonn, Ge many. 5 Cen e o Economic Policy Resea ch (CEPR), London, UK. 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