Labor Market Institutions and Unemployment Dynamics in Transition Economies

Labor Market Institutions and Unemployment Dynamics in Transition Economies

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This paper studies interactions between labor market institutions and unemployment dynamics in transition economies. It presents a dynamic matching model in which state sector firms endogenously shed labor and private job creation takes time. Two main conclusions arises. First, higher unemployment benefits increase steady-state unemployment, and, during the transition, they reduce the fall in real wages and speed up closure of state enterprises. Second, higher minimum wages can theoretically speed up the elimination of state sector jobs without affecting steady-state unemployment. These results are broadly consistent with existing evidence on the dynamics of unemployment and real wages in transition economies.The first policy exercise we carry out is to examine how changes in the unemployment benefits affect the equilibrium and the dynamics of the model. In general, the level of unemployment benefit affects both job creation in the private sectoranbsp;...


Title:Labor Market Institutions and Unemployment Dynamics in Transition Economies
Author: Mr. Pietro Garibaldi, Ms. Zuzana Brixiova
Publisher:International Monetary Fund - 1997-10-01
ISBN-13:

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