Unemployment and the Social Safety Net During Transitions to a Market Economy: Evidence from the Czech and Slovak Republics

CERGE-EI Working Paper Series No. 118

30 Pages Posted: 25 Jan 2010

See all articles by John C. Ham

John C. Ham

National University of Singapore (NUS) - Department of Economics

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Gerald R. Ford School of Public Policy

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 1997

Abstract

In this paper we evaluate the part played by the unemployment compensation systems (UCS) in the generally high unemployment rates experienced in the transition and we provide an explanation for the differences in the performances of the Czech and Slovak labor markets. Using data we collected from administrative records, we estimate the relative effects of various variables on the probability that an individual leaves unemployment in a given week (a hazard function) in each republic. We propose a new identification strategy that provides relatively precise marginal effects of the UCS (benefits and entitlement) on unemployment duration in the two republics. We compare the experience of recipients of benefits and non-recipients to obtain an alternative measure of the impact of the UCS on the probability that an individual leaves unemployment (infra-marginal effect). We conclude that the marginal and infra-marginal effects of the UCS on unemployment duration are moderate.

We also derive and implement an Oaxaca-type decomposition of the difference in the (nonlinear) expected unemployment durations between the two republics to learn what is driving the different outcome. We find that two-thirds of the difference in the durations of the unemployment spells is due to differences in the estimated coefficients (different responses of firms, individuals and institutions in the two labor markets). The remaining one-third of the difference is explained by differences in the explanatory variables. For the recipients of unemployment benefits, we find that about one-third of this difference is explained by differences in the levels of local demand variables and a variable measuring structural differences at the district level. However, among non-recipients, differences in demographic characteristics play a more important role than differences in demand factors between the CR and SR.

Keywords: Czech Republic, hazards, Slovakia, transition, unemployment duration, unemployment benefits

Suggested Citation

Ham, John C. and Svejnar, Jan and Terrell, Katherine, Unemployment and the Social Safety Net During Transitions to a Market Economy: Evidence from the Czech and Slovak Republics (December 1, 1997). CERGE-EI Working Paper Series No. 118. Available at SSRN: https://ssrn.com/abstract=1540887 or http://dx.doi.org/10.2139/ssrn.1540887

John C. Ham (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

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Singapore 117570, Singapore 119077
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Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA ( email )

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CEPR

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CERGE-EI

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University of Ljubljana ( email )

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Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan ( email )

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United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerald R. Ford School of Public Policy ( email )

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Ann Arbor, MI 48109
United States

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