Unemployment and poverty in Eastern Europe and the former Soviet Union can be reduced only if market reforms are implemented and the investment climate improves, according to a World Bank report.

The report, which analyzes labour markets in 27 transition countries since the fall of communism about 15 years ago, warns that despite the region's success in moving to a free market economy, job opportunities are still scarce.

"Unless the employment outlook improves, the substantial poverty reduction in the region since 1998 could come to a halt, which would undermine political support for reform," Arup Banerji, who supervised the report, said.

Jan Rutkowski, lead economist at the World Bank and co-author of the report, said while some transitional unemployment was expected in the countries, the surprise lay in its persistence.

"Many workers displaced by structural shifts failed to find new jobs, and quite a few others have either been out of a job for over a year, or are in low-productivity occupations," according to the report.

"In some of the new member states of the European Union, as well as in some acceding countries, the unemployment rate tends to be in double digits.

"In the Commonwealth of Independent States countries, the jobs problem lies more in the quality of jobs which are less productive and don't pay as much."

The report, based on a survey of over 4,000 business owners and managers, said countries need to improve their investment climates to encourage companies to develop and hire people.

It cited administrative barriers, corruption, high taxes and inefficient courts among obstacles standing in the way of development.

"The specific needs differ across countries," the report said.

It said new and prospective European Union members of Central and Eastern Europe need to improve regulations, including lowering the costs of starting businesses and reforming their pension and social security systems, in order to spur investments.

It noted that in Hungary, for example, while the procedural costs associated with opening a business are low, the costs of registering a business are among the highest in the region.

In middle income countries of the Commonwealth of Independent States (CIS), such as Kazakhstan, Russia, and Ukraine, deregulating labour laws and enforcing basic labour standards is required, the report said.

"Also, if unemployment schemes and other programs could be developed to help laid off workers, fewer people would feel compelled to hang on to dead-end jobs for survival," it added.

It urged low-income CIS countries in the Caucasus and Central Asia to pursue their march toward market economies and to reduce risks associated with opening a new business.

"Since it's the young, small, private firms creating the jobs, governments need to push for business-friendly reforms," Stefano Scarpetta, who co-authored the report, said.

"Jobs programs and policies to retrain workers or help the unemployed will not be enough to solve the underlying problem."

The countries covered in the World Bank study are: Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Former Yugoslav Republic of Macedonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Moldova, Poland, Romania, Russian Federation, Serbia and Montenegro, Slovak Republic, Slovenia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.