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Government Distributional Concerns and Economic Policy During the Transition from Socialism

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  • Gordon, Roger H
  • Li, David Daokui

Abstract

Before the transition governments had strong distributional objectives, which they pursued mainly by direct controls over state enterprise wage rates and hiring decisions, yielding a highly compressed wage distribution. During the reform they maintained similar controls over state enterprises, but had to take into account competition from the new non-state sector that was mostly free from these controls. Based on these distributional considerations alone, we forecast: 1) an immediate and continuing decline in the skills of workers in the state sector as the most able workers leave; 2) higher productivity in the non-state sector, which consists of the most able workers; 3) accounting losses in the state sector, reflecting the transfer of tax revenue to finance payments to the unskilled previously financed within the firm; and 4) restructuring within the state sector to reduce the distortions to relative wage rates. These phenomena are broadly observed across all transition economies.

Suggested Citation

  • Gordon, Roger H & Li, David Daokui, 1997. "Government Distributional Concerns and Economic Policy During the Transition from Socialism," CEPR Discussion Papers 1662, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1662
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    Citations

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    Cited by:

    1. Lee, Young, 1999. "Wages and Employment in China's SOEs, 1980-1994: Corporatization, Market Development, and Insider Forces," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 702-729, December.
    2. Maria Csanadi, 2009. "The metamorphosis of the communist party: from entity to system and from system towards an entity," CERS-IE WORKING PAPERS 0904, Institute of Economics, Centre for Economic and Regional Studies.
    3. Maria Csanadi, 2001. "A Model Explaining Social and Political Change of Party-states Structural and Dynamic Background of Similarities and Differences in Reproduction, reforms, Collapse and Transformation," CERS-IE WORKING PAPERS 0101, Institute of Economics, Centre for Economic and Regional Studies.
    4. John Litwack & Yingyi Qian, "undated". "Balanced or Unbalanced Development: Special Economic Zones as Catalysts for Transition," Working Papers 97044, Stanford University, Department of Economics.

    More about this item

    Keywords

    Economic Transition; Government In Transition; labour productivity in transition; policy during transition; Redistribution; Wage Structure;
    All these keywords.

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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