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small negative contribution of size effects (-0.30%).6 Similarly, the net growth rate in the EU8 is equal to -1.64% and is composed of a large cumulative sectoral effect (10.48%), a large negative contribution of state ownership (-7.43%), a somewhat smaller negative effects of the privatized sector (-2.64%) and the size impact of privatized firms (-2.16%).7 The size of firms in the private sector and in the state sector contributes little to the aggregate employment growth. Overall, the high contribution of growth among the private firms in the EU8 (which is considerably faster than in the Cohesion group) is completely wiped out by the negative ownership and ownership-size effects of the state and privatized sectors of -11.85%.

Bar 3 of Figure III.1 shows contributions of these factors to the differences in the employment growth rates across the two groups of countries. Because sectoral growth among private firms is faster in the EU8 group (followers/convergers, poorer group) than in the Cohesion group (leader, benchmark group), the corresponding difference appears as negative number in bar 3 of the figure (6.69%-10.48% = -3.79%). Conversely, state and privatized ownership effects appear as large negative numbers in bar 2, being drags on growth in followers, and thus as positive numbers in bar 3 (slowing down the catch-up process).

Finally, bar 4 of Figure III.1 shows the decomposition results, which further disaggregate the effects of ownership, sector and size into endowment and coefficient effects, as discussed in the decomposition framework. It appears that the presence of state and privatized firms in the EU8 (endowment of these countries with such enterprises) slows down the employment growth rate and, consequently, the catch-up process in these economies (the contribution of these endowment effects to the difference in the observed employment growth rates is 7.04% and 4.8% respectively). In contrast, the differences in

6 These numbers are the predicted values from the regression of employment growth in the Cohesion countries on sectoral dummies and firm size variable (the ownership variables are missing because the Cohesion sub-sample only includes new private firms).

7 These numbers are the predicted values from the regression of employment growth in the new UE members on sectoral and ownership dummies, firm size variable, and its interaction with ownership variables.

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