Firms Debt and Labour Adjustments during a Transition: The Experience of Central and Easter European Economies.

This paper explores the way firms' leverage has contributed to job destruction in Central and Eastern European economies in the 2002-2007 years, a period of rapid growth of credit to households and firms. In particular, it provides evidence on the way firms' adjustment differentially involved permanent and temporary workers, and workers differentiated by skill level. In so doing, it explores the nexus between firms' financial conditions and employment in CEE firms during the period immediately preceding the Global Financial Crisis. The main finding is that asset liquidations in these firms has involved permanent rather than temporary workers and skilled workers rather than unskilled ones, which contradicts established theories of human capital and labour adjustment.