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1.2 Employment policy

All of the economies in transition formulated new employment strategies after the collapse of the communist regime, aimed at overcoming restrictions of the free movement of labor and building a genuine labor market that would fulfill free market economy requirements.

In the Czech Republic, from the very beginning of the transition process, employment policy was incorporated into the overall economic and social strategy, which regulated economic and social development, and influenced the choice of measures and instruments within state monetary, fiscal, structural and wage policies. Its long-term goal to achieving full productive and freely chosen employment involved a transformation in the social and educational systems (Nesporova and Uldrichova, 1997, p. 60).

Unlike Czech policy, Hungarian employment policy was initially less comprehensive. Because of a misunderstanding of the concept of full employment, the Hungarian government did not consider it to be a goal. The government believed that full employment could be achieved only through massive direct state intervention, which did not reflect the basic principles of the free market economy they wanted to achieve. This perspective retained the socialist notion of full employment as excluding any kind of unemployment, in contrast to the free market belief that certain types of unemployment, such as frictional or structural unemployment, were inevitable (Frey, 1997, p. 80). However, Hungarian employment policy focused on the narrow task of unemployment management, with the goal of moderating labor market tension.

In 1993, the Report on a Comprehensive Employment Strategy was completed at the request of the Council for the Reconciliation of Interests (CRI). The report defined broad policy objectives, including a decrease in unemployment growth and the provision of employment to people who wanted to work. It stressed increasing labor demand, decreasing labor supply, improving labor market mobility and flexibility, and developing employment services and active labor market programs, as well as creating social safety nets. Despite these broad objectives, the report did not go beyond a narrow interpretation of employment policy. Though ministries besides the Ministry of Labor were charged with taking responsibility for introducing employment-friendly measures, tasks such as developing infrastructure and a housing program – which would have increased labor demand – were not included. In addition, little attention was paid to creating tax allowances, investment subsidies, or state guarantees that would help promote exports. After the second half of 1993, however, Hungary started to implement broader programs after suffering the negative consequences of its narrow employment policy (Ibid., p. 79).


State employment policy in the transition countries is designed and implemented through a network of labor market institutions. For example, the Ministry of Labor and Social Affairs in the Czech Republic is responsible for preparing drafts of legislation and implementing laws after they are approved by the government. The Ministry is also responsible for labor inspection. Czech employment policy is fairly decentralized (Nesporova and Uldrichova, 1997, p. 61). This is not the case in Romania, where a high degree of centralization was further increased after the revolution (Zamfir, 1997, p. 141). In the Czech Republic, passive and active labor market policy is implemented by the regional labor office, which makes it easier to track and respond to rapid changes in the labor market, particularly in relation to the growth of the private sector (Nesporova and Uldrichova, 1997, p. 62).

Responsibility for the organizational aspects of employment policy in Hungary in the 1980s lay with labor departments, called councils, of the local governments. In the mid-1980s, as unemployment increased, the administrative assistance function was moved to special organizational units, called labor exchange offices, still under the auspices of the councils. Finally, in 1991, an employment act laid out the legal framework for establishing a national labor organization.

The Hungarian labor organization was established based on German and Swedish models. It includes a national labor center, county labor centers and local offices. The national labor center has professional control over the county labor centers and operates an information system for the whole organization, as well as providing professional training. The 20 county labor centers are responsible for 200 local offices, which provide services such as unemployment compensation, placement and counseling. Collaborating with subcontractors, they also operate active labor market programs, as specified in the employment act (Frey, 1997, p. 94).


The organizational structure of public employment services is similar throughout the region in terms of their levels of operation (national, regional or county, and local). This is particularly true in the countries already mentioned, as well as Slovenia, Poland, Ukraine and Bulgaria (Gora, p. 124; Yatsenko, p. 200; Drobnic, p. 167; and Bobeva, p. 32). Of course, on a practical level, differences in the degree of decentralization are visible. As mentioned earlier, Romania remains centralized. Similarly, local authorities in Bulgaria are not explicitly responsible for implementing labor market policies; municipal councils do not employ labor experts, which in effect means that local offices work directly for the Bulgarian Ministry of Labor and Social Welfare (Bobeva, 1997, p. 32). In Hungary, the job-matching system is not a state monopoly because private employment agencies exist. Employers make independent decisions about hiring or firing except when there will be major layoffs; these must be announced in advance to allow employment services adequate time to respond appropriately (Frey, 1997, p. 94).

Another common feature of employment policy is the intention to develop tripartite negotiation among state officials, trade unions and employers’ associations as part of the legal and institutional framework. The Czech Republic had an established social partnership until 1994 when, as a result of a serious dispute about amendments to the labor code, the government attempted to withdraw by explaining that state involvement was no longer necessary. The other social partners opposed that attempt, believing that the state still had a significant role to play in transition development (Nesporova and Uldrichova, 1997, p. 61). Slovenia faced problems because of ideological tensions between trade unions that viewed their roles differently, which diminished their authority and political power (Drobnic, 1997, p. 165). In Bulgaria, frequent changes in government and the national bodies of the social partnership created instability in round-table negotiations. This was particularly difficult at the national level, because dialogue was often politically motivated (Bobeva, 1997, p. 32).


Despite differences in employment policies in the transition countries, all of them tried to establish a legal and institutional framework that would serve as a basis for implementing concrete passive and active labor market policies.

1.3 Passive labor market policies


According to OECD terminology, passive labor market policies are aimed at providing employment opportunities to job seekers and employers, offering financial assistance to job seekers, and reducing the labor supply (Nesporova and Uldrichova, 1997, p. 62). Although each country has outlined distinct criteria the unemployed must meet in order to be covered by passive labor market policies, the same range of policies exist in all of the countries.

The package of passive labor market policies normally includes registering job seekers, collecting information about vacancies from enterprises, providing job counseling as well as professional guidance and assistance, collecting information about available employment programs, managing unemployment benefit payments, and in some cases, supervising early retirement schemes as well.

Measures related to registering and placing the unemployed are relevant in all transition countries and serve as a foundation upon which other passive labor market programs can be built. Labor offices are responsible for registering the unemployed and facilitating new job placements. Each country has laws that clarify who can register the unemployed. In both the Czech Republic and Hungary, both public labor offices and private agencies help with placement.

In Poland, by contrast, a law forbids private employment agencies; similar laws are in force in Spain and Denmark (Fretwell and Jackman, 1994, p. 176). When the law was enacted, Poland faced more difficulties with placement than either the Czech Republic or Hungary. There were fewer vacancies and fewer labor office staff, most of whom were preoccupied with administrative responsibilities and could not dedicate sufficient attention to placing job seekers (Gora, p. 125). Poland and other transition countries also encountered problems with registering placement successes because there were no strict rules about the process, which made the rate of unemployment inconsistent (Ibid.).


Two types of passive policy activities were designed to reduce labor supply. One type was to undertake subsidized activities.2 Governments of transition economies, through either implicit or explicit subsidies, or by delaying enforcement of bankruptcy laws, tried to maintain the labor surplus in state enterprises. Godfrey and Richards argue that such subsidies should be given to firms that are suffering temporary difficulties, but have the potential for future competitiveness. Unfortunately, such an approach was not adopted in most countries. In Romania in 1993, for example, subsidies kept inefficient enterprises alive, prolonging the process of restructuring, and using 33 percent of unemployment funds to support the “technically unemployed” who were still registered with these enterprises as “employed”. Ukraine faced a similar situation. From 1990 to 1993, unemployment fell to under 10 percent while real GDP fell by 36 percent, which reveals that there had been cases of high subsidies and labor hoarding. Another phenomenon was increasing unpaid leave and short-term work, which in 1993 affected 40 percent of employees (1997, pp. 4-5).

Another activity to reduce labor supply was creating early retirement schemes. This was popular in the Czech Republic, Hungary, Romania, and Slovenia (Ibid., p. 8). The early retirement scheme in the Czech Republic was introduced in 1991, when Czech authorities doubled the payroll tax of workers who had reached retirement age. In the Czech Republic, these schemes were possible only for redundant workers (Nesporova and Uldrichova, 1997, p. 64), while in Hungary they were restricted to those who had been unemployed for at least six months (Frey, 1997, p. 99). Criteria were regulated by law. In Hungary, candidates had to have a minimum of 20 years of work experience, be within three years of the regular retirement age, and be unable to find a suitable job – even through the labor office (Ibid.). In the Czech Republic, candidates had to have a minimum of 25 years of work experience, be within two years of the regular retirement age, and be unable to find a suitable job – even through the labor office (Nesporova and Uldrichova, 1997, p. 64). In the Czech Republic, approximately 100,000 people entered early retirement annually in 1992 and 1993. In Hungary, 20,011 people retired early in 1992 and 29,752 in 1993. Czech schemes were covered from social insurance funds rather than employment policy resources, while Hungarian schemes were funded by pension insurance transfers from the Solidarity Fund (Ibid.). This measure was struck down by the Czech courts in 1993 (Kramer, 1997, p. 91).


Slovenia’s early retirement scheme was similar to Hungary’s and was particularly popular in 1990-91. Its cost was evenly divided between the state and employers. Although the retirement scheme was politically and socially accepted in Slovenia at first, it became costly and inefficient as an instrument of coping with unemployment in the long run (Drobnic, 1997, p. 173). Until the end of 1994, Poland had a similar policy, called a “pre-retirement benefit”. It was introduced for older, laid-off workers who lived in depressed areas and had worked a certain length of time – 30 years for men, 25 years for women. The number of people who received pre-retirement benefits in 1993 was 20,000, which is less than in the Czech Republic but similar to Hungary (Gora, 1997, p. 126).

The unemployment benefit system was a passive labor market policy that received large amounts of money from employment funds in nearly all of the transition countries. Ukraine was a notable exception, where a significant part of the employment fund remained unused due to low unemployment. Only 5 percent of the fund was devoted to unemployment benefits, while 44 percent was spent to finance active labor market policies. In 1993, 38 percent of the fund’s financial resources remained unused (Yatsenko, 1997, p. 200). Another exception was the Czech Republic, which, as already mentioned, had few jobless compared to other transition countries. Its 1990, its generous unemployment benefit system increased the number of registered unemployed, which in 1992 led it to modify the benefit system, making it one of the most restrictive in Europe. This allowed the Czech government to shift resources towards active labor policies with the result that, in 1992, it spent more on active policies than on passive ones (Kramer, 1997, p. 90).

Unemployment benefit systems are complex and differ across the region in terms of entitlement period and benefit formulae (Table 1.3). While there are differences in eligibility, in general, eligibility requirements are the “involuntary termination of employment, registration at unemployment offices, willingness to undergo job training, and no refusal of suitable offers” (World Employment, 1996/97, p. 127). The duration of benefits depends on the amount of previous continuous employment, and in some countries on age as well. To determine the amount of benefits, countries use previous earnings, minimum and average wages, or a flat rate, as in Albania and Estonia.


Table 1.3 shows that some countries had unemployment benefit laws prior to 1989, though they were usually not enforced. Real implementation started when countries faced an increase in mass unemployment, which forced them to modify and reintroduce laws.


Table 1.3 Unemployment benefits in transition economies


Country

Law

Source of funds (%)

Qualifying conditions

Benefits




First

Current

Worker1

Employer2




Level

Duration

Albania

1993



0

6

61 year contribution

Flat rate of minimum subsistence, of 1920 leks/month

12 months or 365 days

Bulgaria

1925


1989

0

7

6 months of employment in the previous year

60% of average earnings in the previous 6 months, ranging from 90-140% of the minimum wage

6-12 months

Czech
Republic

1991, 1992



0.75

2.25

12 months of employment in the previous 3 years

50-60% of earnings, but not less than 3300 crowns/month

6 months

Hungary

1957

1991

1.5

5

48 months of employment before loss of job

50-70% average net earnings, ranging from 100-200% of the minimum wage

2 years

Poland

1924

1991, 1994

0

3

180 days of employment in the previous year

36% of the average national

12-24 months

Romania


1991

1994

1

5

No income higher than half of the minimum wage

50-60% of earnings, not less than 75% of the minimum wage

270 days

Slovakia

1991



0

0

12 months of employment in the previous 3 years

50-60% of earnings

6 months

Slovenia

1927

1991, 1992, 1993

0.7

0.7

Employment in previous 9 months or 12 months in the previous 18 months

50% of average earnings

3-24 months

Estonia

1991

1994

0

0

180 days of employment in a period of 12 months

Flat rate of 180 krooni

180-270 days

Latvia

1991




Pension contributions

Income lower than the minimum wage

Ranging from 70-90% of the minimum wage

6-12 months




Lithuania

1919

1990

0

1.6



50-70% of the average wage at the last job

6 in any 12 months

Belarus

1921

1993

0

1



50-70% of earnings, ranging from 1-2 times the minimum wage

26 weeks

Russia

1921

1991, 1992, 1994

0

2

Employment for 12 weeks in the last 12 months

45-75% of average wage in the previous year, ranging from minimum wage to average wage

12-24 months within 36 months

Ukraine

1921

1992


0

3

No income exceeding minimum wage

50-75% of average wage in the previous job, ranging from minimum wage to average wage

12 months in 3 years

Kyrgy
zstan

1921

1991, 1994

0.5

1.5



Ranging from 100-150% of the minimum wage

26 weeks

Uzbe
kistan

1921



0

3

No employment income

50% of the previous average earnings, ranging from the minimum wage to the average wage

26 weeks

China

1986, 1993



0

0.6-1

1 year in covered employment

120-150% of local public assistance benefit

1-2 years

Source: US Social Security Administration, Office of Research and Statistics: Social security programs throughout the world – 1995, as presented in Table 4.8 in World Employment 1996/97, p.126.


1Percentage of earnings; 2 Percentage of payroll.


Graduate unemployment assistance, similar to unemployment benefits, was introduced in Hungary as a way of addressing the problem of youth unemployment. Graduates of secondary school or higher, who register as unemployed within 18 months of graduation, are entitled to this type of assistance. The benefits last a maximum six months and consist of 75 percent of the minimum wage. This measure contributed to an increase in the rate of youth unemployment, which is higher than adult unemployment (Frey, 1997, p.99).

Another important issue is how laws in transition countries deal with the period after entitlement, in particular with the long-term unemployed. Few countries, among them Hungary and Slovenia, provide social assistance to those who are no longer eligible for unemployment benefits. In Hungary, unemployment assistance was introduced in 1993 for those who had exhausted their entitlements and whose family income per head did not exceed 80 percent of the minimum retirement pension. There was no time limit, which meant that people could receive this type of assistance as long as the conditions were met. Costs were divided between local governments and a central fund. In 1994, a new rule required beneficiaries to accept public work offered by the local government as a condition for this assistance, or benefits could be suspended for six months (Ibid.). This rule combined unemployment assistance as a passive labor market policy with the public works programs of active labor policy (these will be elaborated later). Unlike Hungary, unemployment assistance was time-limited in Slovenia. Initially it was available for up to three years, but in 1994 the period was reduced to six months (Drobnic, 1997, p. 169).

Attempting to address the problems of people whose benefit entitlements had terminated, Poland introduced a free health care program. It provided free health care for the unemployed and their families, regardless of whether they claimed benefits or not, thus attempting to reduce the negative social impact of the shortened duration of unemployment benefits. However, this policy contributed to an increase in the registered unemployed and became yet another burden on the state budget (Gora, 1997, p. 126).


Unemployment benefit systems and unemployment assistance are often criticized as instruments that cause disincentives to work and promote dependence. Some countries, particularly Hungary, have been criticized for being too generous. However, some analysts argue that, due to the inflationary environment – especially in the first years of transition – and the fact that benefits are rarely fully indexed, the benefits are less generous in reality than they initially appear. Moreover, every new amendment to unemployment benefit law serves to further restrict eligibility and cut benefits (World Employment, 1996/97, p. 127).

1.4 Active labor market policies


The main goals of active labor market policies are “ to facilitate restructuring and to anticipate, shorten, and alleviate unemployment to the extent that doing so is feasible and cost-effective”, while at the same time increasing labor productivity, especially for the economically disadvantaged and unemployed (Fretwell and Jackman, 1994, p. 169).

Active labor market policies normally consist of a variety of programs. Different programs, or a mix of programs, have been implemented in the transition economies, depending on the specific labor market in a country or region and the targeting of job seekers. Of the transition countries, the Czech Republic dedicates the most attention to developing active policies; more than half its total expenditure on unemployment is via active policies. Unlike the Czech Republic, other Central and Eastern European countries spend only 10 percent of their funds for the unemployed on active policies (Ibid.).

Training and retraining programs are some of the most widely implemented active labor market policies in the transition economies. In the Czech Republic, training programs aim to improve trainees’ chances of finding new jobs. Czech training programs include carefully designed courses that meet actual labor market needs; with a good match between trainees and courses, jobs are found more rapidly after retraining (Nesporova and Uldrichova, 1997, p. 65). However, Czech training courses are available free of charge only for the registered unemployed, and exclude employees threatened by redundancy and employees of enterprises that are undergoing restructuring (Ibid.), which diminishes their chances of finding a job afterwards.


A similar problem exists in Bulgaria, where a number of disadvantaged groups, including unskilled youth and the long-term unemployed, are excluded from free training programs. According to Bulgarian legislation, only unemployed people who receive benefit payments are entitled to the free training that is organized by labor offices (Bobeva, p. 38).

Poland offers training programs similar to those in the Czech Republic. In Poland, labor offices offer courses for the unemployed who are unskilled, have skills that are no longer in demand, or have lost their ability to use their skills. If they are receiving unemployment benefits and enroll in a training program, their benefit increases by 15 percent (Gora, 1997, p. 129).

In Hungary, training programs are very popular among trainees. In 1994, some 94,000 people took part in training. One explanation might be that Hungary generously supported training, by providing a subsistence allowance to the unemployed that equaled 110 percent of the unemployment benefit due in the first phase of entitlement. In contrast to the Czech Republic, where labor offices did not offer training courses for the employed, they received a generous supplementary allowance in Hungary. In Hungary in 1993, counties spent 30 percent of their decentralized employment fund on training, while Budapest spent double that amount (Frey, 1997, p. 102). However, the cost effectiveness of such programs has been questioned. Frey argues that these kinds of programs are appropriate for frictional and structural unemployment, but not for unemployment due to lack of demand, which was predominant in Hungary (p. 102). However, 20 to 30 percent of trainees obtained jobs immediately after the program, 20 to 25 percent after one or two months, and only 15 to 25 percent registered as unemployed (Ibid.).

Job creation programs represent a broader concept, involving activities in “socially purposeful jobs” that are intended either for the unemployed or for specific groups of job seekers, including disabled people, graduates, or those interested in starting their own businesses (Nesporova and Uldrichova, 1997, p. 65).


In Poland, measures to create jobs through job subsidies are called “intervention works”. Labor offices refund part of the unemployment compensation to employers who hire the registered unemployed for a limited period of time, not exceeding six months. Additional funding is available if the employer decides to keep the worker. This kind of program is targeted towards vulnerable groups, such as the long-term unemployed, graduates, women and the disabled (Gora, 1997, p. 129, and 131).

Hungary has two types of programs aimed at job creation. The first type of program, called “aid for employment promotion”, gives employers who hire the long-term unemployed a wage subsidy for up to one year.3 This program offers employers a choice of three forms of subsidies from the employment fund: 100 percent of the employee’s wage, the total value of the social insurance contribution, or up to 50 percent of total compensation expenses. The program also requires employers to prove that they have not dismissed anyone from similar jobs in the previous six months and that they will not dismiss anyone from this type of job in the next three months (Frey, 1997, p. 106).

The second type is entitled “subsidies for job creation”, which aims to employ people who are excluded from the labor market. The state offers a tender for creating new jobs. Applicants are chosen based on the number and type of unemployed they intend to employ, and other criteria. The employer must create the jobs within a year of signing the contract and ensure that the jobs are filled by people who have been referred by the labor centers. Labor centers offer several types of subsidies: a non-refundable contribution to capital, which is available to applicants who employ people with reduced working ability; a refundable interest-free contribution to capital; a reimbursement of interest; and a reimbursement of the costs of a loan guarantee (Ibid.). Although this mechanism seems promising, some weaknesses have appeared in practice; new jobs have generally been created in areas with low unemployment, while high unemployment areas have not been able to produce sufficient demand for the program (Ibid.).


Some transition countries, including the Czech Republic, Poland, Bulgaria, Slovenia and Romania, created a type of subsidy for job creation to focus on youth unemployment. Programs varied in terms of the amount of the subsidy, the length of the program, and the type of program. Specifically, subsidies were offered for apprenticeships in Poland, internships in Slovenia, employment in Romania, and combination employment-apprenticeships in the Czech Republic and Bulgaria. The Bulgarian government had high hopes for the youth employment program when it was introduced in 1991. This was especially true because there was no early retirement scheme in Bulgaria; in fact, late retirement was encouraged, in order to meet a condition set by the World Bank for loan eligibility. Unfortunately, however, the program was unsuccessful. At the end of 1991 there were only 70 young people in the program, with the number slowly increasing to 450 in 1994. The failure was attributed to an inefficient dissemination of information and labor offices’ lack of interest in ensuring that the scheme was properly applied (Bobeva, 1997, p. 37).

An interesting active employment program in Bulgaria was a mobility support program, which aimed to address the problem of regional differences in unemployment levels. The program covered travel and moving costs of families who accepted jobs in other regions of the country. Unfortunately, the incentive was modest and not sufficient to encourage migration towards areas with higher unemployment (Ibid., p. 39).

Hungary introduced employment companies to address high regional unemployment, particularly in local communities where large enterprises were liquidated. The goal was to avoid massive and sudden increases in unemployment and social tension by providing temporary employment and training for dismissed workers. By 1994, Hungary had developed two organizations of this kind. One was set up in Ozd, where, due to the reduction of heavy industry, more than 15,000 people had lost their jobs; the other was set up in a similar area where, because of the closing of a large metallurgy company, 4,000 jobs were endangered. Although modest, the results were positive (Frey, 1997, p. 109).


Public works programs exist in almost all the transition countries. Their main goal is to keep the unemployed active, preventing them from feeling discouraged and dependent, by allowing them to carry out some socially valuable activities. In Slovenia, public works include broad activities such as involvement in social services, public administration, education, culture, ecology, agriculture and communal infrastructure. Participants in this program may attend training and have a better chance of finding employment. Data show that in Slovenia in 1992, some 268 people participated in the program, and in 1993, 410 participants found permanent employment (Drobnic, 1997, p. 172). In Hungary in 1991, the public works program only offered physical labor, but recently has moved towards offering more qualified jobs, as in Slovenia (Frey, 1997, p. 103).

Unfortunately, public works programs are not well organized in other transition countries. In the Czech Republic, for example, though activities in public works schemes cover some seasonal work that does not require special skills, they does not include training or assistance in finding new jobs. As a result, they were not popular among the unemployed. This kind of program is often linked to passive unemployment benefit programs, to recruit participants who would otherwise lose their unemployment benefits (Nesporova and Uldrichova, 1997, p. 67).

The promotion of small and medium-sized enterprises (SMEs) is among the more popular active programs in transition economies. Bulgaria, the Czech Republic, Hungary, Poland and Slovenia have created programs that offer support to the unemployed by encouraging them to develop their own businesses. In fact, in the Czech Republic, which implemented such a policy in 1992, support is available regardless of employment status. It is aimed at facilitating access to capital, providing information on relevant legislation, making tax concessions to new entrepreneurs, giving advice on planning and accounting, as well as providing training to new business owners. The Czech government takes this program seriously. Evaluations are conducted annually and government approval is necessary in order to continue old programs or initiate new ones. The Czech program includes two discrete activities: one program regulates the development of SMEs in general, and the other promotes specific fields of activity or the development of a depressed region. These programs offer “guarantees for commercial credits, contributions to cover interest on commercial credits, or guaranteed payment on different terms” (Ibid., p. 68). The government provides some funding, which is complemented by international SME development programs within the framework of EU PHARE4, other international organizations and western governments. Moreover, a special bank, called the Czech-Moravian Guarantee and Development Bank, was created to provide credit guarantees for small and medium-sized enterprises (Ibid.).


In Bulgaria, this kind of program was introduced in 1991 to encourage unemployed people to start their own businesses. Individuals who submitted a self-employment project received funds equivalent to their total benefit payments for the entitlement period. Response to this policy developed slowly. In 1991, only 27 people applied for the program. In 1992, the number of applicants rose after legislative changes based the amount of support on the total number of unemployed family members who were entitled to compensation. By 1992, 4,000 individuals had begun their own business, and in 1993, some 6,000 people started businesses. In 1994, the number of applicants fell to 911 people (Bobeva, 1997, pp. 41-42).

Hungary offered a variety of forms of assistance to unemployed people starting their own businesses. The program offered loans equal to the sum of unemployment benefits for six months, 50 percent of the costs of establishing the enterprise, 50 percent of training costs, and 50 percent of insurance costs for up to one year (Frey, 1997, p. 105). From 1991, when 1,071 people participated in this program, the number increased to 13,000 by 1994. Because 98 percent of the 13,000 program participants requested an extension of their benefits, Frey suggests that many of them participated in this program as a way of extending their benefits for an additional six months. However, this program in Hungary was relatively inexpensive. In 1993, counties spent only 5 percent of their decentralized employment fund on it, subsidizing 6 percent of all participants in active labor market programs (Ibid.).

When Poland introduced start-up loans in 1990, the program was one of the most important active labor market policies. However, due to the budget crisis in 1991, expenditures for this program were sharply cut. Another reason was the labor offices’ lack of preparation for this kind of activity; they were overwhelmed with other administrative responsibilities. Nor were the banks strong enough to provide sufficient support to labor offices in this area. Though expenditure increased in 1993 and 1994 as compared to 1991 and 1992, it was still lower than the amount devoted to this program in 1990 (Gora, 1997, p. 131).


In Slovenia, promotion of self-employment has two stages. Employment offices are responsible for providing basic information to people who show an interest in developing their own businesses. After they present a concrete project, help is provided by a specialized agency through a voucher system. The cost of services rendered by the specialized agencies is reimbursed after the unemployed become self-employed. Data for 1992 show that, of 3,840 people who participated in the program, 833 became self-employed (Drobnic, 1997, p. 172).

Based on the above information, it is possible to conclude that active labor market policies play an important role in addressing unemployment. They attempt to help the unemployed to find jobs by means of counseling and disseminating information. They facilitate labor mobility by training and relocation. They keep individuals active by involving them in temporary jobs, and reduce abuse of the unemployment benefit system by introducing public works programs. However, in reality, active labor market policies have had limited success throughout the region. They are costly, and the already limited budgets of the transition countries cannot provide much incentive for these types of policies. In addition, these policies cannot be implemented in isolation. In order for them to operate properly, economic expansion and stability must support the growth of the private sector, so that the economy can absorb the unemployed who have been prepared through the active labor market policies.



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