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Skill shortages and labor market outcomes in Central Europe

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  • Brixiova, Zuzana
  • Li, Wenli
  • Yousef, Tarik

Abstract

The new Central European members of the EU have been characterized by low employment rates, especially among unskilled workers, despite the GDP recoveries and large private sector shares in output and employment. Evidence points at skill shortages in Central Europe as a key impediment to faster labor reallocation and convergence to the EU-15 employment structures. In this paper, we develop a simple model of labor reallocation with transaction costs and show how skill shortages can inhibit firm creation and increase income inequality. We use the model to examine the impact of training subsidies and their financing on skill acquisition and start-ups of new private firms, and show that the positive effect of subsidies would be mostly offset by high wage taxes. Shifting financing from wage to consumption taxes would improve incentives for workers' training and firm start-ups, while relying more on income taxes could reduce the income gap between workers and entrepreneurs.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 33 (2009)
Issue (Month): 1 (March)
Pages: 45-59

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Handle: RePEc:eee:ecosys:v:33:y:2009:i:1:p:45-59

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Keywords: Skill shortages Employment Central Europe;

References

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Citations

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Cited by:
  1. Spiros Bougheas & Raymond Riezman, 2010. "Market Entry Costs, Underemployment and International Trade," CESifo Working Paper Series 3263, CESifo Group Munich.
  2. Zuzana Brixiova, 2009. "Labour Market Flexibility In Estonia: What More Can Be Done?," William Davidson Institute Working Papers Series wp964, William Davidson Institute at the University of Michigan.
  3. World Bank, 2011. "Challenges to Enterprise Performance in the Face of the Financial Crisis : Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 2316, October.

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