Labor Market Institutions and Unemployment Dynamics in Transition Economies
IMF Working Papers, October 1, 1997
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- Labor Market Institutions and Unemployment Dynamics in Transition Economies
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Bibliographic details
- Authors: Pietro Garibaldi, Zuzana Brixiova
- Published: October 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451930566.001
Summary
- This paper studies interactions between labor market institutions and unemployment dynamics in transition economies.
- It presents a dynamic matching model in which state sector firms endogenously shed labor and private job creation takes time.
- Two main conclusions arise:
- Higher unemployment benefits increase steady-state unemployment, and, during the transition, they reduce the fall in real wages and speed up closure of state enterprises.
- Higher minimum wages can theoretically speed up the elimination of state sector jobs without affecting steady-state unemployment.
- These results are broadly consistent with existing evidence on the dynamics of unemployment and real wages in transition economies.
Model and Mechanisms
- Framework: Dynamic matching model with endogenous labor shedding by state sector firms and gradual private job creation.
- Key mechanisms:
- Unemployment benefits affect both steady-state unemployment and transition dynamics by cushioning wage declines and accelerating state enterprise closure.
- Minimum wages influence the pace of elimination of state sector jobs in transition without changing steady-state unemployment in the theoretical model.
Main Findings and Implications
- Findings:
- Higher unemployment benefits:
- Increase steady-state unemployment.
- During the transition, reduce the fall in real wages.
- Speed up closure of state enterprises.
- Higher minimum wages:
- Can theoretically speed up the elimination of state sector jobs.
- Do not affect steady-state unemployment in the model.
- Consistency:
- The theoretical results align broadly with existing empirical evidence on unemployment and real wage dynamics in transition economies.
- Policy implications (as implied by model results):
- Adjustments to unemployment benefits have trade-offs between social insurance and labor market dynamics, affecting both steady-state unemployment and the speed of structural reallocation.
- Changes to minimum wage policy may affect the pace of state sector downsizing during transition without necessarily altering long-run unemployment in the model’s setting.
Publication and Metadata
- Authors: Pietro Garibaldi, Zuzana Brixiova
- Date: October 1, 1997
- Series: Working Paper No. 1997/137
- Issue: 137
- Volume: 1997
- Pages: 46
- DOI: https://doi.org/10.5089/9781451930566.001
- Stock No: WPIEA1371997
- ISBN: 9781451930566
- ISSN: 1018-5941
- Journal note: Also published in Staff Papers, Vol. 45, No. 2, June 1998.
- Subject tags: Economic sectors, Expenditure, Labor, Minimum wages, Production, Productivity, Public sector, Real wages, Unemployment, Unemployment benefits
- Keywords: capital gain, CEE economy, Central and Eastern Europe, job-worker pair, labor market, Matching Models, minimum wage, Minimum wages, opportunity cost, private sector, private sector employment, private sector job, Productivity, Public sector, replacement ratio, reservation productivity, sector job, state sector job, Transition Economies, Unemployment, Unemployment benefits, unemployment insurance system, wage arrears, WP
Source: IMF Working Papers landing page for "Labor Market Institutions and Unemployment Dynamics in Transition Economies" (Pietro Garibaldi, Zuzana Brixiova, October 1, 1997).
Content in this bundle
- Labor Market Institutions and Unemployment Dynamics in Transition Economies - WP/97/137