Wage and employment policies in Czechoslovakia

Czechoslovakia (CSFR) faces marked challenges for successfully accomplishing its transition to a market economy. In recent years the economy was characterized by a good deal of internal and external equilibrium, making possible the current market oriented reforms without the complications which arise from a complex stabilization program. However, the present administration is contending both with the distorted allocation of resources and a rigid regulatory framework left by the old system; these have created potential impediments to the success of reform measures. Labor market reforms in both the short and long term represent a dramatic change from the past, and a key challenge for designing programs and attaining political stability. In the short run, proper labor market policies play a central role in preventing an inflationary spiral. In the longer term, CSFR, like all other Eastern European countries in economic transition, faces the challenge of designing an appropriate institutional framework for the labor market. Unemployment will be a normal byproduct of market allocation as persons flow between jobs, necessitating an unemployment insurance system along with policies and institutions aimed at easing the friction incurred with intersectoral labor mobility. Similarly, wage setting mechanisms must be instituted, possibly through collective bargaining.