Analyzing divergences in unemployment rates in post-Communist countries

The economic transition in post-communist countries has generated a new phenomenon: open unemployment. Since the start of reforms, official unemployment rates have been very high in CEECs (Central and Eastern European Countries) as compared with the low (often below 6%) rates that has prevailed in the NIS (Newly Independent States) formed out of the Soviet Union. The macroeconomic factors underlying these diverging rates are analyzed. Econometric estimates of unemployment rates are made using panel data about the 1991/1992-1996 period. The first conclusion drawn is that the significant variables affecting these rates differ in each of the aforementioned groups of countries. In particular, there is no Phillips curve in either group, whereas Okun's law does hold in CEECs, but not in the NIS, where unemployment is not connected to the level of economic activity. Reforms have not had a clear-cut impact on unemployment in the first group, and they do not represent a significant factor in the second group. These results do not, therefore, back up the idea that economic liberalization causes unemployment to rise.