ECONOMIC RESTRUCTURING, UNEMPLOYMENT, AND GROWTH IN A TRANSITION ECONOMY

This paper develops a model of the process of reallocation of labor fr om the state sector to the private sector. When growth is exogenously determined, we show that in the initial stages of transition unemploym ent will rise. After a critical stage in the transition process, restr ucturing is accompanied by a decline in unemployment. When growth is e ndogenously determined, and human capital is acquired by learning-by-d oing, we show that whether or not restructuring eventually occurs is d etermined by the level of human capital in the private sector and the rate of unemployment. The effects of various shocks and government pol icies on the costs, speed, and eventual outcome of restructuring are a nalyzed. [JEL J41, J6, O11, P2]