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Transition with Labour Supply

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  • Tito Boeri

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.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 274.

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Length: pages
Date of creation: 01 Dec 1999
Date of revision:
Handle: RePEc:wdi:papers:1999-274

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References

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  1. Ours, J.C. van & Ridder, G., 1992. "Vacancies and recruitment of new employees," Open Access publications from Tilburg University urn:nbn:nl:ui:12-142178, Tilburg University.
  2. Dewatripont, M & Roland, G, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 703-30, October.
  3. Tito Boeri & Christopher J. Flinn, . "Returns to Mobility in the Transition to a Market Economy," Working Papers 123, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Nauro Campos, 1999. "Back to the Future: The Growth Prospects of Transition Economies Reconsidered," William Davidson Institute Working Papers Series 229, William Davidson Institute at the University of Michigan.
  5. van Ours, Jan & Ridder, Geert, 1992. "Vacancies and the Recruitment of New Employees," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 138-55, April.
  6. Simeon Djankov & Gerhard Pohl, 1997. "Restructuring of Large Firms in Slovakia," William Davidson Institute Working Papers Series 73, William Davidson Institute at the University of Michigan.
  7. Boeri, Tito & Burda, Michael C, 1995. "Active Labour Market Policies, Job Matching and the Czech Miracle," CEPR Discussion Papers 1302, C.E.P.R. Discussion Papers.
  8. repec:fth:coluec:655 is not listed on IDEAS
  9. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers.
  10. Ratna Sahay & Carlos A. Végh Gramont & Stanley Fischer, 1998. "How Far is Eastern Europe from Brussels?," IMF Working Papers 98/53, International Monetary Fund.
  11. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  12. Rodrik, Dani, 1995. "The Dynamics of Political Support for Reform in Economies in Transition," CEPR Discussion Papers 1115, C.E.P.R. Discussion Papers.
  13. Antonio Spilimbergo & Eswar Prasad & Paolo Mauro, 1999. "Perspectives on Regional Unemployment in Europe," IMF Occasional Papers 177, International Monetary Fund.
  14. Blanchard, Olivier Jean & Diamond, Peter, 1992. "The Flow Approach to Labor Markets," American Economic Review, American Economic Association, vol. 82(2), pages 354-59, May.
  15. Derek C. Jones & Takao Kato, 1998. "Chief Executive Compensation During Early Transition: Further Evidence from Bulgaria," William Davidson Institute Working Papers Series 146, William Davidson Institute at the University of Michigan.
  16. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  17. Pietro Garibaldi & Zuzana Brixiova, 1998. "Labor Market Institutions and Unemployment Dynamics in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 269-308, June.
  18. Aghion, P. & Blanchard, O.J., 1993. "On the Speed of Transition in Central Europe," Working papers 93-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. repec:fth:eeccou:146 is not listed on IDEAS
  20. Tito Boeri, 1994. ""Transitional" unemployment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 1-25, 03.
  21. Gavin, M., 1993. "Unemployment and the Economics of Gradualist Policy Reform," Discussion Papers 1993_07, Columbia University, Department of Economics.
  22. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  23. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
  24. Djankov, Simeon & Pohl, Gerhard, 1997. "The restructuring of large firms in Slovakia," Policy Research Working Paper Series 1758, The World Bank.
  25. Richard Jackman & C Pauna, 1997. "Labour Market Policy and the Reallocation of Labour Across Sectors," CEP Discussion Papers dp0338, Centre for Economic Performance, LSE.
  26. Boeri, Tito, 1997. "Labour-Market Reforms in Transition Economies," Oxford Review of Economic Policy, Oxford University Press, vol. 13(2), pages 126-40, Summer.
  27. Fidrmuc, J., 1999. "The Political Economy of Reforms in Central and Eastern Europe," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80019, Tilburg University.
  28. Burda, Michael C, 1992. "Unemployment, Labour Market Institutions and Structural Change in Eastern Europe," CEPR Discussion Papers 746, C.E.P.R. Discussion Papers.
  29. Boeri, Tito & Scarpetta, Stefano, 1996. "Regional mismatch and the transition to a market economy," Labour Economics, Elsevier, vol. 3(3), pages 233-254, October.
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