LABOR-MARKET REFORMS IN TRANSITION ECONOMIES

Several lessons can be drawn from the natural experiments of central a nd eastern European countries with labour-market policies. Two of them are particularly relevant also for OECD countries. First, it is not w ise to reduce the duration of unemployment benefits when the length of unemployment spells are on the rise, unless (i) unemployment is still low and there is the administrative capacity to implement active labo ur market policies on a wide scale or (ii) there are income support sc hemes of the last resort in place and an administration capable of cos t-effectively enforcing work-tests for those falling off unemployment benefit compensation rolls. The second and perhaps more positive lesso n in the light of the above is that it is possible to transform instit utions and create an efficient policy delivery mechanism within a shor t time span.