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Transition with heterogeneous labor

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Author Info
Balla, Katalin
Köllo, János
Simonovits, András

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Abstract

We extend the benchmark model of Aghion and Blanchard [Aghion, P., Blanchard, O.J., 1994. On the speed of transition in Central Europe, NBER Macroecon. Ann. 9, 283-319] assuming that the private sector emerging during the post-communist transition consists of two segments employing high and low-productivity labor, respectively. We assume that the segments are isolated in terms of labor mobility but connected by a national system of taxation. We look at how the key policy variables - the speed of closing the state sector, unemployment benefits and subsidies to the low-productivity segment - affect the paths of employment, wages, aggregate income and equity during and after the transition. We find that the effects of benefit generosity and the job destruction rate are ambiguous and heavily depend on how the other two policy instruments are set. A subsidy can enhance equity without reducing aggregate employment in the whole range of the other two policy parameters. The subsidy has the strongest marginal effect on aggregate employment (income) and equity when the pace of job destruction is high and benefits are generous.

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Publisher Info
Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 19 (2008)
Issue (Month): 3 (September)
Pages: 203-220
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Handle: RePEc:eee:streco:v:19:y:2008:i:3:p:203-220

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Web page: http://www.elsevier.com/locate/inca/525148

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  1. Philippe Aghion & Olivier J. Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. Stepan Jurajda & Katherine Terrell, 2001. "What Drives the Speed of Job Reallocation during Episodes of Massive Adjustment?," CERGE-EI Working Papers wp170, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
    Other versions:
  3. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Randolph Luca Bruno, 2006. "Optimal speed of transition with a shrinking labour force and under uncertainty ," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 69-100, 03. [Downloadable!] (restricted)
  5. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May. [Downloadable!] (restricted)
  6. Snower, Dennis J., 1994. "Converting Unemployment Benefits into Employment Subsidies," CEPR Discussion Papers 930, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Huber, Peter, 2006. "Regional labor market developments in transition," Policy Research Working Paper Series 3896, The World Bank. [Downloadable!]
  8. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Brixiova, Zuzana & Kiyotaki, Nobuhiro, 1997. "Private sector development in transition economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 241-279, June. [Downloadable!] (restricted)
  10. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1991-1), pages 1-106. [Downloadable!]
  11. Tito Boeri, 1999. "Transition with Labour Supply," William Davidson Institute Working Papers Series 274, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  12. Castanheira, Micael & Roland, Gérard, 1996. "The Optimal Speed of Transition: A General Equilibrium Analysis," CEPR Discussion Papers 1442, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Stepan Jurajda & Katherine Terrell, 2000. "Optimal Speed of Transition: Micro Evidence from the Czech Republic," William Davidson Institute Working Papers Series 355, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  14. Burda, Michael C, 1992. "Unemployment, Labour Market Institutions and Structural Change in Eastern Europe," CEPR Discussion Papers 746, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Dewatripont, M & Roland, G, 1992. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," Economic Journal, Royal Economic Society, vol. 102(411), pages 291-300, March. [Downloadable!] (restricted)
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