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August 1998, Vol. 121, No. 8
Robert J. Gitter and Markus Scheuer
According to the conventional wisdom, the transformation from a planned to a market economy is usually accompanied by a high degree of unemployment. The State sector sheds excess workers, who are gradually absorbed into a growing private sector. In the Eastern bloc nations, it was hoped that the growth of the private sector would be rapid, despite its starting from a rather small base whose ability to absorb workers was thought to be limited. However, as a result of this constraint, in practically all of those countries, the economic transformation was accompanied by high levels of unemployment during the transitional period.1
The lone exception appears to have been the Czech Republic, whose transformation from a centrally planned economy to a market-oriented one has been accomplished with substantially lower levels of unemployment than were seen in other Eastern European nations. Indeed, in 1995, not only was the Czech unemployment rate less than that of every other former Eastern bloc nation, but it was even lower than those of the major European economies and the United States and stood second only to the Japanese unemployment rate, among the rates for 27 member nations of the Organization for Economic Cooperation and Development (OECD).2 Although this accomplishment of the Czechs has been noted elsewhere,3 no full, systematic discussion of the reasons the unemployment rate is so low in the Czech Republic has ever been presented in the literature. Accordingly, this article explores the reasons behind the highly touted "miracle" of low unemployment during and after that nations economic transformation from a centrally planned to a more market-oriented economy.
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1 For examples of the conventional wisdom on Eastern bloc unemployment during the economic transition, see World Bank, From Plan to Market: World Development Report l996 (New York, Oxford University Press, 1996); and Simon Johnson, "Employment and Unemployment," in Edward Lazear, ed., Economic Transition in Eastern Europe and Russia (Stanford, CA, Hoover Institution Press, 1995), pp. 391418.
2 Economic Survey of the Czech Republic (Paris, OECD, 1996).
3 Among the many publications in which the low unemployment rate of the Czech Republic has been noted are Tito Boeri and Michael C. Burda, "Active Labor Market Policies, Job Matching and the Czech Miracle," European Economic Review, vol. 40, 1996, pp. 80517; Michael C. Burda and Martin Lubyova, "The Impact of Active Labor Market Policies: A Closer Look at the Czech and Slovak Republics," in David M. G. Newbery, ed., Tax and Benefit Reform in Central and Eastern Europe (London, Centre for Economic Policy Research, 1995), pp. 173205; Simon Commander and Andrei Tolstopiatenko, "Unemployment, Restructuring and the Pace of Transition," in Salvatore Zeccini, ed., Lessons from the Economic Transition: Central and Eastern Europe in the 1990s (Dordrecht, the Netherlands, Kluwer Academic Publishers, 1997), pp. 33150; John Ham, Jan Svejnar, and Katherine Terrell, "Czech Republic and Slovakia," in Simon Commander and Fabrizia Coricelli, eds., Unemployment, Restructuring and the Labor Market in Eastern Europe and Russia (Washington, DC, World Bank, 1995), pp. 12862; Kamil Janácek, "Unemployment and the Labor Market in Czechoslovakia and the Czech Republic," Eastern European Economics, JulyAugust 1994, pp. 5570; Martin Myant, "An Incomplete Transformation?" in Martin Myant, Frank Fleischer, Kurt Hornschild, Ruzena Vintrová, Karel Zeman, and Zdenek Soucek, Successful Transformations? The Creation of Market Economies in Eastern Germany and the Czech Republic (Cheltenham, U.K., Edward Elgar, 1996), pp. 12862; Ruzena Vintrová, "Stability before Growth?" in Myant and others, Successful Transformations? pp. 95127; and Karel Zeman, "The Restructuring of Industry," in Myant and others, Successful Transformations? pp. 20534.
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