Welfare and labour markets in transition : the case of the Kyrgyz Republic
This thesis examines welfare and labour markets during the transition away from a command economy of one of the less developed Republics of the FSU, the Kyrgyz Republic. In the FSU, the early 1990s were characterized by large falls in GDP and small changes to already low unemployment. Microeconomic theory is applied to explain these macroeconomic outcomes and the first Chapter of Part II, the labour market section, presents a model of firms' production decisions. Adjustment in labour intensity, rather than quantity, is shown to be part of a rational strategy given features of Soviet institutions. Delays in wage payments increased significantly over this period. Wage arrears have an impact on household welfare as well as reflecting a breakdown in formal employment. A probit regression model of the incidence of wage arrears is applied to examine if certain workers were more affected by this phenomena. The effects to the formal labour market resulted in increased informal sector activities. Despite significant delays in wage payments workers were observed to work full-time in formal employment. A model of workers' labour supply decisions is presented which incorporates features of informal activities within and outside formal employment. These extensions result in non-trivial changes to the reservation wage. The provision of social benefits through enterprises is also shown to affect decisions to work in the informal sector. Part I of the thesis examines the extent of changes to welfare using both monetary and non-monetary measures. The first Chapter uses an expenditure-based measure of household income to examine changes in inequality and poverty. The second Chapter uses self-reported happiness and illustrates how informative such measures can be, particularly when monetary measures are likely to be subject to measurement error. The analysis is based on recently available nationally representative household survey data for the years 1993 and 1996.