Plant Scale, Industry Agglomeration, and the Outlook for Regional Employment in Central European Economies

A common outcome among Central European transition economies is the significant variation in regional unemployment rates, a condition symptomatic of allocative inefficiency in the labor market. Several studies attribute such variation, at least in part, to large vertically integrated industrial complexes erected during the period of central planning, and in turn to subsequent employment adjustment that operates to the disadvantage of local workers during transition. In this study I provide a test of this hypothesis by examining the correlates of local employment change at the outset of reforms, and specifically adjustment triggered by extreme variation in local plant size and scale externalities.