Labor Market Institutions and Unemployment Dynamics in Transition Economies

Pietro Garibaldi and Zuzana Brixiová Schwidrowski

No 1997/137, IMF Working Papers from International Monetary Fund

Abstract: 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 arises. First, 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. Second, 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.

Keywords: WP; private sector; minimum wage; labor market; Unemployment; Transition Economies; Matching Models; state sector job; job-worker pair; replacement ratio; CEE economy; capital gain; private sector job; unemployment insurance system; reservation productivity; wage arrears; opportunity cost; private sector employment; sector job; Public sector; Minimum wages; Unemployment benefits; Productivity; Central and Eastern Europe (search for similar items in EconPapers)
Pages: 46
Date: 1997-10-01
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Citations: View citations in EconPapers (11)

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Journal Article: Labor Market Institutions and Unemployment Dynamics in Transition Economies (1998)
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