This article describes and assesses the impact of evolving labour market institutions after the onset of transition in South-East Europe on economic performance and, at the same time, the impact of international advice on the direction and speed of institutional change. Institutions analysed include employment protection legislation, features of passive and active labour market policies and trade unions and collective bargaining structures. Countries of the region could roughly be divided into two groups – first, covering successor states of former Yugoslavia, with more rigid, and second, covering former centrally planned economies, with more flexible labour market institutions. This divide suggests the importance of institutional tradition. A simple test is undertaken to indicate whether the two groups differ significantly with regard to economic and labour market performance. No firm evidence is found to support the assumption that more flexible labour regimes induce better economic results, contrary to what has been the leading paradigm in the region, promoted by World Bank and IMF. Conditionality is only a partial explanation for their dominant influence; we argue that their agenda is better articulated and communicated than competing agendas of ILO and EU.
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