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services and nonmarket services), and show that employment shares during the transition have generally moved towards benchmarks calculated from a sample of market economy comparators: in particular, the share of industry has fallen and the share of market services has risen in all TEs. These patterns are also evidenced in the relative growth rates of firm employment and jobs in the BEEPS surveys, but with a twist. The employment growth regressions for 1999, 2002 and 2005 show that employment in trade and services firms has grown consistently faster than in manufacturing firms in the EU8 countries.9 The twist is that, for the lower-income TE country groups (SEE and CIS), the differential switches size and manufacturing firms grow as fast as services firms in 1996- 99 and then faster than services firms in 1999-02 and 2002-05. When we look at aggregate employment growth (i.e., job growth), however, the pattern is different for TEs as a whole – net job growth is slower in manufacturing throughout the period – which is consistent with the findings by Raiser at al. (2004).10 In short, we have evidence at the firm level of two different Kuznets-Chenery-type patterns. In the higher-income TEs, the lower rate of employment growth in manufacturing relative to services reflects primarily a convergence to market economy benchmarks driven by industrial sectors that were “too large” at the start of transition, and market services sectors that were “too small”. In the lower-income TEs, the observed pattern of relatively higher rates of employment growth in manufacturing relative to services is consistent with a bigger impact of the standard Kuznets-Chenery-type pattern in which, as a country develops and productivity growth, employment in manufacturing first increases and then decreases.

In sum, the picture painted by the BEEPS data is broadly consistent with both the basic macroeconomic trends in the region, and with previous sectoral and firm-level studies: following the “transformational recession” (Kornai 1994) of the mid-1990s, TEs have been growing, and at a faster rate than that observed in the developed market economies

  • convergence is under way. The pattern of growth at the country, sectoral and firm level

9 These and other results discussed in this paragraph are not shown in the paper, but are available on request from the authors.

10 The explanation for this contrast is as follows: Raiser et al. (2004) and other studies that have looked at structural change in this framework use shares of total employment, whereas the faster growth of manufacturing firms relative to services firms in the lower-income TEs that we report is based on firm level


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