THE BEHAVIOR OF STATE FIRMS IN EASTERN-EUROPE, PRE-PRIVATIZATION - A GENERALIZATION

This paper extends the model of enterprise restructuring in transition al economies developed by Aghion, Blanchard and Burgess in a way that generalises and clarifies the problem worker opposition to it. Restruc turing that causes an initial reduction in jobs followed by a possible subsequent increase may be resisted by workers, even where it is soci ally optimal. This 'undue' resistance arises not because workers do no t value the new jobs that may be created, but rather because they do n ot value them sufficiently. Worker resistance is thereby shown to depe nd on the general level of unemployment, with implications for the pac e of restructuring.