Labour-market reforms in transition economies

Several lessons can be drawn from the natural experiments of central and eastern European countries with labour-market policies. Two of them are particularly relevant also for OECD countries. First, it is not wise to reduce the duration of unemployment benefits when the length of unemployment spells are on the rise, unless (i) unemployment is still low and there is the administrative capacity to implement active labour market policies on a wide scale or (ii) there are income support schemes of the last resort in place and an administration capable of cost-effectively enforcing work-tests for those falling off unemployment benefit compensation rolls. The second and perhaps more positive lesson in the light of the above is that it is possible to transform institutions and create an efficient policy delivery mechanism within a short time span.