Impact of Industrial Change on Skills during the Economic Transition in CEE

26 February 2024/Article

VA team is excited to inform that four of our team members – Dr Žilvinas Martinaitis, Aleksandr Christenko, Dr Pijus Krūminas, and Dr Agnė Paliokaitė – have published a new paper titled “Impact of Industrial Change on Skills during the Economic Transition in Central and Eastern Europe”. The aim of the paper is to explore the extent of reskilling that happened during the transition period in selected CEE countries, as well as the individual and country-level factors that could explain why some remained in the labor market while others exited it. The study was heavily built upon the work performed by Tyrowicz and van der Velde (2018), who carried out an extensive analysis of labor mobility during the transition period. However, VA team also heavily expanded on their research by further exploring what individual factors allowed some workers to remain in the labor market, as well as highlighting the importance of foreign direct investments (FDI).

Key findings:

  • The transition in Central and Eastern European (CEE) countries from 1989 to 2004 did not result in large-scale radical reskilling or upskilling of the labor force. Instead, the structural changes in the economy led to a turnover in cohorts of workers, with individuals possessing obsolete skills exiting the labor market while young entrants with new skill sets met the demand.
  • Research also highlights the importance of factors such as foreign direct investment (FDI), education level, and prior experience in services and other occupations in determining individuals’ survival in the labor market during and after the transition period. Additionally, the paper did not find a statistically significant impact of vocational education on skills, contrary to some prior research.

How relevant are the lessons learned beyond transition and for policymakers?

Skill Formation Systems and Adaptability: The study underscores the importance of skill formation systems in balancing static productivity, achieved through job-specific training, and adaptive capacities, attained through preparation for careers in dynamic labor markets. It highlights that an overly narrow focus on developing a limited set of skills directly relevant to specific jobs, coupled with the absence of lifelong learning opportunities, has hampered the ability of workers from planned economies to adapt to evolving economic structures. Policymakers should thus prioritize the development of adaptable skill sets that equip individuals to navigate changing job landscapes effectively.

Vulnerability of Workers with Specific Skills: The research identifies workers with narrowly specialized skills, pertinent to a limited number of companies, as particularly vulnerable to significant shifts in economic structures. This finding emphasizes the necessity for education policies to adopt a more balanced approach. While preparing individuals for specific roles is crucial, there should also be an emphasis on fostering creativity and problem-solving abilities. Such a strategy can enhance individuals’ resilience, enabling them to sustain employment amidst widespread restructuring and transformation.

Significance of “Sticky Skills” and Path Dependency: The concept of “sticky skills” underscores a significant path dependency in economic development trajectories. Consequently, countries must implement robust lifelong learning schemes to facilitate smoother transitions and aid the older generation in adapting to rapidly changing working environments. While many Central and Eastern European (CEE) countries have extensive lifelong learning initiatives in place post-EU accession, concerns about automation and technological advancements heighten the vulnerability of older workers with “sticky skills” and limited capacity to cope with uncertainty, particularly due to their Soviet-era upbringing. Given these challenges, policymakers should consider enhancing existing lifelong learning programs to focus on developing creative skills, thereby better preparing employees at risk of job loss for the evolving demands of tomorrow’s workforce.

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