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Unemployment, Wage Push and the Labour Cost Competitiveness of Regions - The Case of Hungary, 1986-1996

Gabor Kertesi () and Janos Kollo ()
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Janos Kollo: Labour Research Department, Institute of Economics, Hungarian Academy of Sciences

No 9905, Budapest Working Papers on the Labour Market from Institute of Economics, Centre for Economic and Regional Studies

Abstract: The paper analyses regional relative wages using individual and firmlevel data from Hungary 1986-96. In regions hit hard by the transition shock labour costs fell substantially; the estimated elasticities of wages with respect to regional unemployment were in a range typical of mature market economies already in 1992-93. In later stages of the transition the hard-hit rural regions lost a large part of their cost advantage vis-ê-vis Budapest and the central agglomeration for reasons including spatial diseconomies and falling search activity among the registered unemployed. The paper argues that the time path observed in Hungary (a U-curve of relative labour costs in crisis-hit regions) may prevail in other economies calling the attention to the limits of wage flexibility as a cure to persistent regional crises.

Date: 1999-06
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