The effect is large primarily because official earnings were so low. In this situation, it does not take much in the way of survival strategy earnings to have a large compensating effect.
However, not everyone could compensate effectively. The income distribution within each formal employment group actually widens when informal incomes are included. To see which people were more or less able to compensate for low earnings in their regular jobs through informal activities, we need to use multivariate regression analysis. Table shows the results from simultaneous equation estimation.
The specifications and estimation procedures are the same as reported in Table , but now the left-hand-side variables are our estimates of inside and outside earnings.
The first two columns are only for the nonseparated workers, while. In none of the specifications do we find these measures of inside and outside earnings to have significant negative signs. Again, however, this is not necessarily cause for rejecting Hypothesis I because the cross-tabulation evidence clearly indicates that most people obtained a relatively high level of outside earnings.
Relevant for Hypothesis 2, the dummies for women and for pensioners have a significant negative sign in the inside earnings regression, but are not significant in the outside earnings equation.
The education dummies are significant in the inside regression, but also not significant in the outside equation. By this measure, it seems that no one was unable to compensate for poor low inside earnings.
This is a crude but probably robust measure. In our sample, 56 percent of men and 44 percent of women met this definition of coping, while 20 percent of men and 26 percent of women did not. Table shows the results for probit regressions. These definitions are of course fairly arbitrary, but they do capture the distribution of incomes.
The coping regression shows women were less likely to be coping in these ways, while those with specialized secondary or higher education were more likely to be coping. In confirmation of Hypothesis 3, we find that both inside and outside work intensity are significantly positive.
The second column of Table is the noncoping regression, and it again shows the female dummy to be significant, even when we control for the inside and outside intensity of work. Although not shown here, the dummy for pensionable age is not significant in any specification for either regression. The likely explanation is that women had less access to some remunerative strategies. In particular, women did not work as taxi drivers because they did not own cars and did not generally work as drivers in the formal sector.
Women probably took fewer trips except to Russia because of the risks involved. They also did less "parallel work" for some reason, possibly be-. It could also be that the nature of work in the nonstate sector does not favor women, but we are skeptical of this explanation because women previously did all kinds of work in the Soviet Union. At the same time, our results raise a question about an important hypothesis of the established literature.
Unemployment as a dummy is significant, but not when we control for the outside intensity of work. Undoubtedly, this is because of multicollinearity because the outside intensity is necessarily zero for unemployed people. However, it also suggests that access to survival strategies is at least as important as formal employment status in determining whether people are able to cope on their own. How well does the established theory, based on Eastern European experience, explain labor market adjustment in Ukraine?
It completely ignores informal activities, while the evidence indicates this is an important part of both how people survive and how they behave in the formal labor market.
People can stay in the state sector and supplement their incomes with informal activities. Increases in outside "survival" work appear to be complementary to reductions in inside "formal" work.
We find that the use of survival strategies is an important determinant of whether people can or cannot cope on their own. At least in Ukraine, there has been a considerable flow of people between formal jobs, but unemployment remains low. The established theory of post-communist labor markets needs to be modified to include self-employment and the ability of people to generate their own incomes albeit at a low level.
The Ukrainian nonstate sector, mostly individuals operating by themselves and in an informal way, expanded massively during This growth occurred in large part because the collapse of the state sector and increasing administrative controls over the official economy meant people had to find ways of supplementing their official incomes.
At the same time there has been de facto liberalization of entry into informal activities. A substantial amount of income-earning assets is already controlled by private individuals.
Real estate, vehicles, and some agricultural land are already in private hands to a significant degree even if not formally privatized. State assets such as trucks, trains, and industrial premises can be accessed easily through informal markets. It is fortunate that the state lost its ability to prevent people from using a wide range of assets as they see fit, because this enabled them to earn higher incomes.
However, without proper privatization there is insufficient investment in these assets. Ukrainian people survived on their individual and collective inherited capital stock, and unless full private ownership is established, this capital will likely not be replaced as it depreciates.
It is important to stress, however, that until mid, the Ukrainian private sector merely offered a way to survive. There was not enough stability for serious private-sector investment to take place.
People working in this sector were earning just enough to survive. The private sector can be a powerful force for the positive transformation of work after communism.
The clearest example of this effect is in Poland, where almost every aspect of the economy has been fundamentally transformed as a result of the emergence and growth of new business over the past five years Johnson and Loveman, But this form of private-sector development requires an environment in which private business can establish itself in activities that require relatively sophisticated organizations. This happens only when private entrepreneurs are willing and able to make significant investments in fixed capital assets.
Preliminary evidence suggests that the stabilization and proper liberalization pursued since the fall of have begun to have these effects. Our theory and evidence suggest a reinterpretation of what has happened to unemployment in Ukraine. Officially registered unemployment in the summer of was below 0.
This figure is remarkably low and much lower than the rate in most post-communist countries of Eastern Europe, where it ranged between 10 and 20 percent. It is commonly supposed that the official numbers are understatements, but even surveys indicate that open unemployment—people who do not have a job and would like one—in Ukraine is only between 3 and 6 percent.
The established explanations for the relatively low level of unemployment in Ukraine are that very few people are fired from state enterprises, and that there are many genuine unemployed who do not register because benefits are so low see Coricelli and Revenga, We examine these hypotheses in turn. At the beginning of , the organizations in our sample had total employment of 13,, and this figure remained approximately constant in and ; there was actually a 1 percent increase, most of which occurred in Of 26 organizations, 16 had an increase in employment during this period, and there were increases in all sectors, although a higher proportion of firms increased employment in the machine- and equipment-building sectors.
However, total employment fell 5 percent in , and a further 5 percent from the start of to the time of our interviews in mid At the time. An annex containing a detailed analysis on "gross separations" is available on request. From January to the time of the interviews, the employment of women fell by 10 percent and that of men by 5 percent.
Total employment in the sampled organizations at the time of our interviews was 11, This net decline in employment masks the fact that there was a substantial amount of hiring in these same enterprises during Strikingly, 24 out of 25 enterprises for which we have this information hired some people, and while only 3 enterprises had gross hiring above 10 percent of their January employment levels, 17 hired more than 5 percent of this total.
In sum, the evidence indicates that people have been fired from all the state organizations we surveyed. It is true that firings were minimal until January As part of a labor force reduction, only 0.
However, in both years, "other" firings were between 1 and 2 percent; this figure probably represents managers getting rid of workers they did not want. After January there was a sharp increase in firing: 3 percent during and 5 percent from the beginning of as labor force reduction, and percent as "other. Many people have either been fired or been forced to quit. Why, then, has unemployment remained so low?
There were people who identified themselves as unemployed among our respondents. Of this total, 19 percent were not receiving any benefits and were not registered as being unemployed, and 38 percent had been unemployed for less than 3 months.
For up to 3 months from separation, people who have been fired as part of a labor force reduction get their benefits from the enterprise rather than the government. According to Ukrainian practice, people are not counted as unemployed until they register with the government's offices.
The effect of this procedure is to exclude almost all short-term unemployed from the registered total. According to Ukrainian law, a worker can be dismissed as part of a labor force reduction only if he or she cannot or will not take another job in the enterprise. The simultaneous firing and hiring on the scale reported in our sample suggests that this legal requirement is not enforced. In the case of dismissal due to a labor force reduction, management must give the employee at least 2 months' prior notice.
On the day of dismissal, the employee must receive any outstanding payments, including compensation for unused holidays, and an additional I month's pay.
During the next 2 months, any ex-employee who has not found another job has the right to. The reemployment rate for quits is high. Annex Table 7A-1 shows that almost all quits among those surveyed were reemployed after 1 month and that the reemployment rate for people who had been fired rose steadily.
Almost no one who had quit had registered as being unemployed or was receiving benefits. Therefore, in our survey, the registered unemployed reported in national statistics were only those fired people who had been unemployed for at least 3 months. This is just 34 percent of all the unemployed people in our sample, and converts to an unemployment rate among the population of 4 percent. If we assume that only people unemployed at least 4 months were registered unemployed, the implied unemployment rate falls to 2 percent.
The reemployment rate among our sample was very high for anyone who would have been eligible for benefits. The average reemployment rate for fired people seems rather low at 28 percent, but it rises to 47 percent for people unemployed 4 or more months and keeps on rising Annex Table 7A- 1. It appears that people were not particularly attracted by the level of unemployment benefits. At least in our sample, there was almost no long-term unemployment.
Although our results imply a registered unemployment rate of percent, the "true" unemployment rate—people without a job who are looking for work—in our sample is 11 percent including both quits and people who had been fired. According to Ministry of Labor estimates, about 70 percent of employees who have been dismissed receive such allowances at their enterprises. If this is not done in time, the employee forgoes the right to unemployment compensation.
Table shows that the unemployed without assistance primarily quits were heavily engaged in working at their dachas and in taking trips to Russia. These were unemployed people who were looking for work, and who had significant side incomes that they presumably did not want to report to the state.
This estimate is higher than the official statistic for a number of reasons. Our sample did not include young people who had never worked before or pensioners. Our sample also contained more industrial employment than is the case for the economy as a whole. About 20 percent of Ukraine's population lives in rural areas, closely linked to agriculture, and the unemployment rate is probably lower there.
Our sample may also have been biased toward including more people who had separated recently, and this would also tend to increase the unemployment rate. Taking gross separations since January , removing retirements, and applying the differential reemployment rates for quits and fired implies that a total of 1, people were unemployed. This would be 11 percent of the January level of employment among the surveyed firms. We assume that everyone who had separated before January was reemployed.
Given the high rates of reemployment for people separated more than 9 months, this is not unreasonable. In short, our work suggests that the actual unemployment rate in Ukraine is close to that in Eastern Europe. However, the peculiarities of the benefit system, with the enterprise paying for the first 3 months, mean that most of the short-term unemployed are not registered.
Although this implies an overall unemployment rate similar to that in Eastern Europe, Ukraine has much less long-term unemployment. Most likely this is because the benefits are so low—typically around 20 percent of the minimum survival wage—while it is relatively easy to find a new job of some kind and to supplement that income with a survival strategy.
In contrast to the established view, separated people in our sample could readily find new formal jobs, and labor force participation had not declined as of the summer of Almost everyone was reemployed within 6 months. Even more important, people could generate new informal income-earning opportunities for themselves. This meant people were more likely to quit voluntarily and create job openings, even in companies that were contracting.
As a result, in the summer of , very few people in Ukraine were not working. Aghion, P. Blanchard On the speed of transition in Eastern Europe. Macroeconomics Annual. National Bureau of Economic Research. Alexeev, M. Boone, and S. Johnson Ukraine: Ready for a breakthrough.
Ostekonomisk Rapport 8. Blanchard, O. Commander, and F. Coricelli Unemployment and restructuring in Eastern Europe and Russia. Commander and F. Coricelli, eds. Commander, S. Coricelli, F. Friedman, E. Johnson Complementarities and Optimal Reform.
Unpublished paper, November, Duke University. Journal of Economic Theory 75 1 Johnson, S. Boston: Harvard Business School Press. Ustenko The Road to Hyperinflation: Ukraine Wyzan, ed. New York: Praeger.
Kaufmann, D. Economic Policy 19 December. Milgrom, P. Roberts Rationalizability, learning, and equilibrium in games with strategic complementarities. Econometrica 58 6 : Standing, G. ILO report. Zienchuk, M. This ground-breaking new volume focuses on the interaction between political, social, and economic change in Central and Eastern Europe and the New Independent States.
It includes a wide selection of analytic papers, thought-provoking essays by leading scholars in diverse fields, and an agenda for future research. It integrates work on the micro and macro levels of the economy and provides a broad overview of the transition process. Key Terms bourgeoisie : In sociology and political science, bourgeoisie Fr. Since the late 18th century in the Western world, the bourgeoisie describes a social class that is characterized by their ownership of capital and their related culture.
In contemporary academic theories, the term bourgeoisie usually refers to the ruling class in capitalist societies. In Marxist theory, the abiding characteristics of this class are their ownership of the means of production. Command Economy : Most of the economy is planned by a central government authority and organized along a top-down administration where decisions regarding production output requirements and investments are decided by planners from the top, or near the top, of the chain of command.
Originally it was identified as those people who had no wealth other than their children. The Benefits of Communism Communism ideology supports widespread universal social welfare, including improvements in public health and education. Learning Objectives Explain how the theoretical benefits of communism may lead to a more equitable society.
Key Takeaways Key Points The theoretical advantages of communism are built around equality and strong social communities. Key Terms proletariat : The working class or lower class. Communism : a political philosophy or ideology advocating holding the production of resources collectively. The Disadvantages of Communism Businesses under Communist system have very strict limitations as to what they can and cannot do, which can hamper productivity and innovation.
Learning Objectives Summarize how the strict rules placed on businesses in a communist economic system can lead to social unrest. Key Takeaways Key Points In a Communist system, the central authority dictates the means and quantity of production, and places strict rules on businesses. Since there is no competition amongst firms, each is given the same amount of money and each worker is paid the same, with the same expectations of each.
All businesses are ultimately owned by the government. Populations tend to be treated homogeneously, meaning that common goals or sets of rules will not apply to different segments of the population and community. Without a price mechanism, supply and demand are difficult to balance perfectly over time. Key Terms Price mechanism : An economic term that refers to the buyers and sellers who negotiate prices of goods or services depending on demand and supply. A price mechanism or market-based mechanism refers to a wide variety of ways to match up buyers and sellers through price rationing.
Within non-communist societies, people compete ruthlessly to obtain the largest amount of resources and property for the end goal of wealth. Because property is scarce, once all capital is privatized, the incentive to work will be non-existent because all resources will be exhausted.
Since all non-communist systems will eventually succeed to this condition, the only solution, Marx and Engels argue, is to ensure no privatization of property is allowed. The introduction of computers and the computer industry into communism complicates finiteness of capital.
Unlike the traditional sense of physical property such as land or factories, computers produce a new bountiful medium of ownership. Computers provide a means and way to create seemingly endless capital since the barriers of documenting ideas are significantly lifted through the use of applications and networking.
The limited capital within the world, as described in the Communist Manifesto, has expanded to apparent infinity with the introduction of computing. Hence, the study of how computers have affected work motivation and ethics in Communism is needed. Within a communist society, people are expected to act in the interest of the Communist Party and the majority of society. Specifically, the individual is expected to work and act to promote the betterment of the community.
Hence selfishness, slacking, corruption, seeking the limelight are most contemptible, while As a result, any worker in the computer field is expected to manufacture computer products without the wish for acknowledgment or excessive monetary reward.
Most importantly, communists are expected to surrender their own personal interests when they are in conflict with those of the Communist Party. Most importantly, this means that individuals can not refuse a work assignment due to personal reasons. Historically, Communism has been found to not foster good work ethics.
A reason for failure in work ethics and motivation is the necessity that all communists must be employed. Overmanning positions trivializes the work needed to be performed and placed the concentration on quantity rather than quality.
Many communist societies force upon jobs out of theoretical necessity without providing a way of sustaining interest or providing training. Therefore, Communism in practice appears to counteract the goal of making society better through communal collaboration.
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