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MartinSSEurope - Will The Safety Net Sustain The Weight In...

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Unformatted text preview: Will The Safety Net Sustain The Weight In The Long Run? Social Sector Reform In Eastern Europe With A Specific Focus On The Comparisons And Contrasts Between Poland Hungary Czech Republic Thesis- Since the Industrial Revolution began in the late 18th Century in England most Countries have made an attempt or have achieved economic independence and prosperity with minimal risks to its society. This paper will analyze a general view of PostCommunist Transformations, the social sector reforms, and a possible solution or future outcome for Eastern European Countries. A more detailed approach will examine the social aspects of unemployment and pensions in Poland, Hungary, and Czech Republic specifically. Economics 508 Term Paper Written by: Krista Martin Outline I. Introduction of Social Sector Reform II. Generalized overview of the Social Sector reforms In Eastern Europe III. Specifics on Social sector reforms concentrating on Unemployment and Pensions for Hungry, Poland, and Czech Republic IV. Conclusion V. References Since the fall of Communism in many Countries of the Former Soviet Union, East and Central Europe, they have not been able to provide an adequate social safety net that would be able to bring long term gains. In the late 1980's and early 1990's Socialist countries were experiments in state sponsored systems that claimed to provided free, accessible health care, free housing, education, guaranteed employment, state retirement pensions and free universal child care facilities..Sounds great right? But...with the fall of Communism and the switch to a Market Economy many people could not adjust to the transformations that were occurring so rapidly. They still wanted the state to provide these necessities....and the problems arose... Unemployment Rates 1990 - 1996 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Poland Hungary Czsch Rep '90 '91 '92 '93 '94 '95 '96 Source: Poland Hungary: Pieter Vanhuysse; East European Quarterly, Vol. 33, 1999 Source: Czech Republic: WIIW, 1997:76 Poland, Hungary and Czech Republic Compared Annual Systematic Changes in Eastern Europe ___________________________1993_________________________ _ Inflation Real Growth Unemployment Poland 37.5% 4.0% 15.7% Hungary 21.1% 1.5% 12.2% Czech Republic 18.2% 0.0% 3.5% _______________________________________________________________ Source: Reason, April 1995 ___________________________2001_________________________ _ Inflation Real Growth Unemployment Poland 3.6% 1.1% 18.2% Hungary 6.8% 3.8% 5.8% Czech Republic 4.2% 3.6% 8.2% _______________________________________________________________ Source: Organization for Economic Cooperation and Development, Sept. 2002 Structure of Social Benefits in Poland, in Percent of all Social Expenditures 1989 Social Insurance Benefits Pensions Unemployment Public Health 74.11 53.06 n/a 25.89 1990 71.72 54.70 1.49 28.27 1991 78.66 58.04 4.51 21.34 1992 78.15 57.03 5.92 21.85 Welfare Expenditures n/a 1.37 1.92 2.43 __________________________________________________ Source: Rocznik Statystyzczny, 1990 and 1993 1989 Poland's primary objective of economic reform was to also set up a market system like the Industrially developed countries. Their goal was to transform quickly through radical steps so the hardships would not last as long Wanted to stabilize the economy by bringing down inflation Reducing the budget deficit Initially changes led to an increase in prices and a drop in real wages Some enterprises were forced to close causing unemployment to rise Poland Poland Continued Unemployment went up Poverty increased Unemployment was illegal under communism the state guaranteed everyone a job Had to set up unfamiliar unemployment compensation programs Poland is the largest in EE 1988 38 million Has the largest labor force and unions Needed more capital Poland Continued Employment law established a work fund and builds on a country wide network of employment offices, financed by general rev. and a 2% payroll tax If unemployed need to retrain, start own business, early retirement or if those who don't work receive compensation. They receive 70% of their wages and after 9 months receive 40% for an unlimited period Law of Mass Layoffsapplies to all companies, establishes redundancy procedures, provides formula for severance pay, must get one month notice of lay off and one month pay Poland Continued Indexation Law empores government to control relationship between wage increases and the rate of inflation which controls inflation Poland joined EUtrade will improve economy 1992 has increased economy steadily Table 4.4 Polish Economic Indicators Economic indicators 1993 1994 1995 1996 362.8 20.1 20.1 10.8 24.4 32.6 1.4 17.8 1997 445.1 15.9 15.9 27.0 38.5 4.3 20.4 GDP at current $ (zloty bn) 155.8 210.4 286.0 Real GDP growth 3.8 33.3 26.8 Consumer price inflation 36.9 33.3 26.8 Industrial output growth 6.4 12.1 9.7 8.7 Exports ($bn) 13.6 17.0 22.9 Imports ($bn) 15.9 17.8 24.7 Currentaccount balance ($bn) 2.3 0.9 5.5 Reserves excluding gold ($bn) 4.1 5.8 14.0 Gross external hard currency debt ($bn) 45.2 42.6 42.3 Unemployment(%) 13.4 16.0 14.9 Source: EIU Country Report, 1998: 13. 40.9 39.3 12.4 Structure of Social Benefits in Hungary, in Percent of all Social Expenditures _______ 1990 Social Insurance Benefits Pensions Unemployment Public Health Welfare Expenditures 53.63 36.19 0.36 17.78 n/a 1991 50.87 35.56 2.00 23.23 n/a 1992 49.00 36.16 5.72 31.22 n/a 1993_ 52.09 39.00 5.84 32.51 20.31 Family Care 11.51 11.12 10.85 11.17 __________________________________________________________ Source: Statistical Yearbook of Hungary, 1992 and 1993 Hungary With transition in 1991 unemployment went from virtually nothing to 7% Inflation jumped to 34% 1992 8.3% of State owned farms went from public to private Plants closed 1991 trade deficit was 91 Billion Lack of domestic capital The change and the greater privatization led to reductions in subsidies to industries Hungary Continued On the positive side tourism was 5.6% of GDP in 1992 1990 loss of 1.1 million jobs People turned to the "Black economy" 1/3 of the GDP came from this sector 1995 1/3 of the population was in poverty Hungary Continued Hungary's transition like Poland and Czeck concentrated on economic transform from command to a capitalist economy. Hungary did have more market experience than the other two countries b/c of its contact with the west. They were more export oriented But they had the same recession as the other two. 198990 they wanted democratic political process but b/c of the debt they needed foreign aid and investment. Ageing nature of the population Hungary's work force 4.2 million Number of old age pensioners 2.9 million Hungary Continued Social security contribution employees contributed were 14% employers 44% Hungry was granted 25 million from the US and used it in pension reform 1990 unemployment was 1.7% By 1993 14% 1994 it was 12% 2001 5.8% Continued... Worst hit by unemployment were from heavy industries such as steel production Workers that were lucky to get jobs receive benefit packages that include healthcare, education, and pensions 1992 Council for the Reconciliation of Interest signed a social contract which increased Pension by 14% in return for a value added tax 1996 Socialists froze social spending and raised taxes 2001 min. wage increased by 41% Table 6.2 Economic Indicators, Hungary 199397 Economic indicators 1993 1994 1995 1996 1997 GDP at current $ (Ft bn) 3,548 4,365 5,494 6,845 8,341 Real GDP growth 0.6 2.9 1.5 1.3 4.4 Consumer price infl (%) 22.5 18.8 28.2 23.6 18.3 Exports ($ bn) 8.1 7.6 12.9 14.2 19.6 Imports ($ bn) 12.1 11.4 15.3 16.8 21.4 Current account ($ bn) 4.3 4.1 2.5 1.7 1.0 Total foreign debt ($ bn) 24.2 28.0 31.7 27.7 23.8 Source: EIU Country Report, Hungary, 3rd qtr 1998: 5. Table 6.1 Registered Unemployed in Hungary, 199094 1990 1991 1992 1993 1994 No. of reg. unemployed 24,000 158,000 449,000 620,000 580,000 Source: Katalin Bossanyi, 1995: 97 . Table 5.2 Czech Republic: Selected Economic Indicators, 199095 Indicator 1990 1992 1993 1994 1995 Population per 1000 10,36 10,31 10,33 10,33 10,33 2.7 7.8 0.6 6.2 0.8 Real growth rate (%) 1.2 6.4 0.9 2.6 4.8 Gross invstmnt (koruna bn) 146.6 200.9 256.1 332.6 411.1 Housing const. (1000 units) 44.6 36.4 31.5 18.2 12.7 Unemployment rate 0.8 2.6 3.5 3.2 2.9 Housing const.:Growth rate (%)19.0 12.8 13.4 42.4 30.3 Govt bgt (koruna bn): () or (+) 1.0 1.7 +1.1 +10.4 +7.2 Gross debt (US$ m) 7,08 8,49 10,69 16,54 2 6 4 9 Exports total (US$ m) 13,20 14,25 17,08 4.6 4.7 5.5 Imports total (US$ m) 12,85 14,97 20,88 8.5 0.6 5.9 Source: Figures reproduced from WIIW, 1996: 76. Czeck Republic With the fall of Communism they were able to economically swing back 1996 more than 3000 private companies valued at 20.7 billion 1993 unemployment was at 2.63% one of the lowest percentages in Europe Trade with Germany and other Western Countries helped them rapidly expand No other E European country compared with the growth They took the easier roaddidn't dive right in to a free market economy as Poland did. Provided government assistance during the transition in form of subsidies to failing businesses to prevent unemployment 1997 there was a currency crisis and government cut spending by 2.5% GDP 1997 there were massive floodsexternalities 1998 minor recession 2002 they were stabilized 2003 unemployment was at a record high at 10.2% 2004 Poland and Czeck were part of the European Union and will benefit from expanding trade Unemployment compensation gives 60% of wages until 3 months and then receive 50%, after 6 months they apply for welfare benefits. Trade unions were weak compared to Poland Undercut old age pensions Czech Republic Continued ...
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This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

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