How do economic policies and institutions affect job reallocation processes and their
consequences for productivity growth? This paper studies the extreme case of economic
system change and alternative transitional policies in the former Soviet Republics of Russia
and Ukraine. Exploiting annual manufacturing census data from 1985 to 2000, we find that
Soviet Russia displayed job flow behavior quite different from market economies, with very
low rates of job reallocation that bore little relationship to relative productivity across firms
and sectors. Since liberalization began, the pace, heterogeneity, and productivity effects of
job flows have increased substantially. The increases occurred more quickly in rapidly
reforming Russia than in “gradualist” Ukraine, as did the estimated effects of privatization and
competitive pressures from product and labor markets on excess job reallocation and on the
productivity-enhancing effects of job flows.
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