Transition with Labour Supply

Tito Boeri

No 274, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: The literature on the economics of transition has devoted little, if any, attention to labour supply. We show in this paper that, properly accounting for labour supply adjustments permit to understand some of the most puzzling features of transition, such as the output fall, the strikingly low workers' mobility associated with dramatic changes in the structure of employment, the presence of many job leavers as opposed to job losers, the frequency of direct shifts of workers from one job to another without intervening unemployment spells, and the role played by flows to inactivity in the dis-employment process. Our models show that transitional unemployment involves significant locking-in effects at the micro-level, and unemployment persistence at the aggregate level. It also suggests that, rather than starting with generous non-employment benefits and the subsequently cutting them down, as generally prescribed by the Optimal Speed of Transition literature and actually done by most countries of the region, the right sequence should have been the other way round. The paper sheds some light on other design features of unemployment benefits, suitable for economies undergoing rapid structural change.

Pages: pages
Date: 1999-12-01
New Economics Papers: this item is included in nep-lab and nep-tra
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Citations: View citations in EconPapers (24)

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Working Paper: Transition with Labour Supply (2001)
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