Labour Markets in Albania and Other Transition Economies: Theory and Recent Developments

Rising unemployment and falling living standards are two of the main problems facing economies in transition. In this paper, we present recent developments in labour markets in former communist countries in Europe, and we highlight the distinctive case of Albania, which has the highest levels of unemployment, the largest private sector, and by far the greatest scale of temporary emigration. A simple flow model is used to demonstrate how different time paths of unemployment emerge under different approaches to the reallocation of human capital. The model also analyses the determination of emigration flows, and shows how these flows may in turn influence the rate of growth of the private sector, and the degree of long-term unemployment.