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Unemployment Benefits and Incentives in Hungary: New Evidance


  • Joachim Wolff


This paper analyses the Hungarian unemployment insurance (Ul) benefit reform of 1993, which led to the creation of a less generous benefit system. We investigate a sample of unemployment spells which are drawn from the Hungarian Ul register directly before and after the reform came into force. The focus of the microeconometric duration analysis lies in the interaction of the exit behavior of unemployed people with the Ul system. As exit states we consider employment, subsidised employment, training and (early) retirement. Our results are in support of the hypothesis that the benefit reform increased, significantly, the transition rates from unemployment to all the labour market schemes. In particular, aged people responded to the benefit reform with a substantial rise in their transition rates to (early) retirement. A specific characteristic of our inflow cohort has to be taken into account for the analysis of the employment hazards. A large proportion of our sample represents workers who are likely to be on recall. Their job hazards are extremely sensible to seasonal labour demand fluctuations. We identify these workers and concentrate the analysis of the benefit reform on those workers who are not on recall. They represent workers who most likely were made redundant due to the restructuring of the Hungarian economy. The benefit reforms only slightly increased their speed of return to work. Furthermore, the transition rates to employment are found inelastic to the replacement rate with the exception of women who are below 30 years of age.

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  • Joachim Wolff, 1997. "Unemployment Benefits and Incentives in Hungary: New Evidance," William Davidson Institute Working Papers Series 111, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1997-111

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    References listed on IDEAS

    1. Micklewright, John & Nagy, Gyula, 1996. "Labour market policy and the unemployed in Hungary," European Economic Review, Elsevier, vol. 40(3-5), pages 819-828, April.
    2. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-1024, September.
    3. Patrick Puhani & Viktor Steiner, 1997. "The Effectiveness and Efficiency of Active Labour Market Policies in Poland," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 24(3), pages 209-231, October.
    4. Lubyova, Martina & van Ours, Jan, 1997. "Unemployment dynamics and the restructuring of the Slovak unemployment benefit system," European Economic Review, Elsevier, vol. 41(3-5), pages 925-934, April.
    5. Tito Boeri, 1994. ""Transitional" unemployment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 1-25, March.
    6. Flinn, Christopher J., 1997. "Labor Market Structure and Welfare: A Comparison of Italy and the U.S," Working Papers 97-07, C.V. Starr Center for Applied Economics, New York University.
    7. Puhani, Patrick A. & Steiner, Viktor, 1996. "Public works for Poland? Active labour market policies during transition," ZEW Discussion Papers 96-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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