Determinants of the Albanian Labor Force Participation Rate Throughout the Transition Period

Abstract

Albania’s labor market has restructured significantly during the 26 year period between 1989 and 2015. After the fall of the communist regime, Albania had a considerably low rate of labor force participation, especially among females. A descriptive comparative analysis of secondary demographic and socio-economic data revealed two main dynamics for the female labor force participation rate throughout the transition to a market economy. First, this rate increased during economic crises and decreased immediately after the recessions ended, known as the “added-worker” effect. Second, the analysis confirmed the “U-shaped curve” theory for the female labor force. A further regression analysis demonstrated that child care, education, civil status, and life expectancy were determinants of these determinants for the Albanian female population. In contrast, the age effect was one of the main drivers of male labor force participation. Its determinants were age, employment in the manufacturing sector, and wage in the industry level. The modern microeconomic theory of fertility was partially confirmed in the Albanian labor market. The study provided evidence for the intertemporal substitution hypothesis as well. Finally, this study concludes that the Albanian labor market has experienced dynamic adjustments to the market economy similar to those in the South East European countries. There is also evidence of support for classical theories. The labor market reveals evidence of the process of adjustment to market-driven allocation. The determinants of the male, female, and total labor force participation rates show a similar pattern and tendency of convergence. The final part of this paper provides several implications for policy.