Monopolistic wages or efficient contracts? What determined the wage-employment bargain in post-privatization Bulgaria?

Using a representative sample of medium and large firms, this paper explores the process of employment and wage bill determination in the Bulgarian manufacturing sector. The results suggest that, during 1997-2001, the labour market behaviour of these firms was consistent with weakly efficient contracting and employment elasticity with respect to both sales and wages similar to that of the fastest-reforming Central and Eastern Europe economies. Although a case study using data on sell-off deals by the Privatization Agency suggests that the largest firms selected for cash privatization may have exhibited higher preference for wage enhancement than employment protection, the results do not bring into question the efficient performance of the post-crisis labour market in Bulgaria. Importantly, the study rejects the hypothesis that either persistent government stakes or mass privatization may have led to efficiency deterioration.