Worker-firm Matching and Unemployment in Transition to a Market
AbstractIn this paper we compare the nature and determinants of outflows from unemployment in the case of the Czech and Slovak Republics which in early 1990’s experienced a process close to a controlled experiment. Overall, our study suggests that the exceptionally low unemployment rate in the Czech Republic as compared to Slovakia and the other Central and East European economies has been brought about principally by (1) a rapid increase in vacancies along with unemployment, resulting in a balanced unemployment-vacancy situation at the aggregate as well as district level, (2) a major part played by vacancies and the newly unemployed in the outflow from unemployment, (3) a matching process with strongly increasing returns to scale throughout (rather than only in parts of) the transition period, and (4) ability to keep the long term unemployed at relatively low levels. Using the framework of matching functions we find that in many years the usual Cobb-Douglas specification and the hypothesis of constant returns to scale are rejected. A translog matching function with weak separability between the existing and newly unemployed is found to be the functional form best supported by the data. Our theoretical analysis also indicates that by not adjusting data for the varying size of districts or regions, previous studies may have generated estimates of the returns to scale of the matching function that were biased toward unity.
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Length: 39 pages
Date of creation: 16 Feb 2001
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Find related papers by JEL classification:
- P2 - Economic Systems - - Socialist Systems and Transition Economies
- J4 - Labor and Demographic Economics - - Particular Labor Markets
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
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