This chapter aims to identify key labour market patterns in Central and Eastern European (CEE) countries that have emerged during the transition from state socialism to a market economy and integration into the European Union (EU). Labour market developments can be interpreted as the outcome of interactions between general economic developments and the evolution of specific labour market institutions (Riboud et al, 2002). Both aspects have changed dramatically over the past two decades. First, the transition from socialism to a market economy has induced substantial economic changes. Second, labour law and regulations on industrial relations have been adopted to promote the emergence of capitalism. In the following, we will take a more in-depth look at whether these changes have translated into labour market changes.

The analysis begins with a short overview of the economic context of transformation, identifying important contextual factors such as the diversity of existing initial conditions, the different pathways of privatisation and other institutional economic reforms. An examination of trends and cross-country differences in labour force participation, labour market flexibilisation and unemployment dynamics follows, with a specific focus on the youth demographic group. Finally, the chapter discusses the nature of labour market institutions the CEE countries have adopted since the transition. The central dimensions of employment protection regulations and industrial relations are examined. The entire analysis relies substantially on comparable quantitative indicators and their qualitative evaluation.

Economic development

Initial economic conditions and GDP growth during the transition

The former socialist Eastern European countries experienced significant variation in initial conditions at the outset of the transition period 1988-92 (Ringold, 2005). For example, the Baltic countries were part of the Soviet Union and therefore suffered from an unfavourable set of initial conditions inherited from the social, economic and political activities of the former Soviet regime. In contrast, Central European socialist countries like Poland, the Czech Republic, Hungary and Slovenia had more contact with Western markets, and some market-oriented reforms were already in place before the transition. The variation in initial conditions can be displayed in a simplified manner in terms of gross domestic product (GDP) per capita, measured in current international dollars for reasons of comparability. At the time of the fall of the Iron Curtain, the Czech Republic, Slovenia and Hungary were the wealthiest CEE countries with a GDP per capita twice that of the poorest CEE countries Romania and Bulgaria (Table 2.1).