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Rapid labor reallocation with a stagnant unemployment pool : the puzzle of the labor market in Lithuania

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  • Rutkowski, Jan

Abstract

Lithuania is a transition economy undergoing rapid enterprise restructuring associated with substantial job turnover. At the same time, unemployment in Lithuania is high and of long duration. This presents a puzzle: high job turnover epitomizes labor market flexibility, while high unemployment indicates labor market rigidities. What are the reasons behind this paradox? Why do the unemployed not benefit from job opportunities created by high job turnover, which entails high rates of job creation and hiring? To answer this question, the author looks at three perspectives on labor market flexibility: 1) The macroeconomic perspective-A flexible labor market is one that facilitates full use and efficient allocation of labor resources. 2) The worker perspective-A flexible labor market means ease in finding a job paying a wage adequate to the worker's effort and skills. 3) The employer perspective-A flexible labor market does not unduly constrain the employer's ability to adjust employment and wages to changing market conditions. The author looks at all three dimensions of labor market flexibility by analyzing job reallocation, worker transitions across labor force states, wage distribution, and regulatory constraints faced by employers. He focuses on the issue of job creation and job destruction, using micro level data on all registered firms. He finds that flexibility in one dimension can concur with rigidities in the other. Specifically, employers in Lithuania have a substantial degree of flexibility with employment adjustment coupled with limited flexibility to wage adjustment due to a high statutory minimum wage. The relatively rigid wage structure locks low productivity workers who are preponderant among the unemployed. The low-skilled long-term unemployed have become marginalized and unable to successfully compete for available jobs, while the high job turnover is accounted for largely by job-to-job transitions. As a result, a dynamic labor market coincides with a stagnant unemployment pool.

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  • Rutkowski, Jan, 2003. "Rapid labor reallocation with a stagnant unemployment pool : the puzzle of the labor market in Lithuania," Policy Research Working Paper Series 2946, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2946
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    2. Mihails Hazans, 2007. "Looking for the workforce: the elderly, discouraged workers, minorities, and students in the Baltic labour markets," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(4), pages 319-349, September.
    3. Asmae Beladel & Radouane Raouf, 2022. "Impact assessment of job reallocation on unemployment in Morocco: An ARDL approach," African Development Review, African Development Bank, vol. 34(4), pages 500-512, December.
    4. World Bank, 2004. "Serbia and Montenegro : An Agenda for Economic Growth and Employment," World Bank Publications - Reports 14487, The World Bank Group.
    5. Kompa Krzysztof, 2012. "Commonwealth of Independent States Economic Development: Multidimensional Comparison of States," Folia Oeconomica Stetinensia, Sciendo, vol. 12(2), pages 72-89, December.
    6. Ramiz Rahmanov & Asif Gasimov & Gulzar Tahirova, 2016. "The Labor Market in Azerbaijan," Working Papers 1602, Central Bank of Azerbaijan Republic.
    7. Francesco Pastore & Joanna Tyrowicz, 2013. "Polish high unemployment and spatial labor turnover. Insights from panel data analysis using unemployment registry data," Working Papers 2013-18, Faculty of Economic Sciences, University of Warsaw.
    8. World Bank, 2005. "The Quest for Equitable Growth in the Slovak Republic : A World Bank Living Standards Assessment," World Bank Publications - Reports 8312, The World Bank Group.
    9. World Bank, 2005. "Ukraine Jobs study : Fostering Productivity and Job Creation, Volume 2, Technical Chapters," World Bank Publications - Reports 8464, The World Bank Group.
    10. Tyrowicz, Joanna & van der Velde, Lucas, 2018. "Labor reallocation and demographics," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 381-412.
    11. Weller, Jürgen, 2007. "La flexibilidad del mercado de trabajo en América Latina y el Caribe. Aspectos del debate, alguna evidencia y políticas," Macroeconomía del Desarrollo 5429, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    12. Krstic, Gorana & Sanfey, Peter, 2007. "Mobility, poverty and well-being among the informally employed in Bosnia and Herzegovina," Economic Systems, Elsevier, vol. 31(3), pages 311-335, September.
    13. Rutkowski, Jan, 2006. "Labor market developments during economic transition," Policy Research Working Paper Series 3894, The World Bank.
    14. Bukowski, Maciej & Koloch, Grzegorz & Lewandowski, Piotr, 2008. "Shocks and rigidities as determinants of CEE labor markets' performance. A panel SVECM approach," MPRA Paper 12429, University Library of Munich, Germany.
    15. Rutkowski, Jan, 2004. "Firms, jobs, and employment in Moldova," Policy Research Working Paper Series 3253, The World Bank.
    16. Maciej Bukowski & Grzegorz Koloch & Piotr Lewandowski, 2013. "Shocks and rigidities as determinants of CEE labour markets’ performance," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(3), pages 553-581, July.
    17. Jekaterina Navicke & Arunas Juska, 2020. "Labor code reform and flexible work arrangements in Lithuania: gender differences in demand and outcomes," GRAPE Working Papers 43, GRAPE Group for Research in Applied Economics.

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