Unemployment and Worker-Firm Matching : Theory and Evidence from East and West Europe

The paper tests three hypotheses about the causes of unemployment in the Central-East European transition economies and in a benchmark market economy (Western part of Germany). The first hypothesis (H1) is that unemployment is caused by inefficient...

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Bibliographic Details
Main Authors:	Munich, Daniel, Svejnar, Jan
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO INFORMATION ACTIVE EMPLOYMENT ACTIVE EMPLOYMENT POLICY ACTIVE LABOR ACTIVE LABOR MARKET ACTIVE LABOR MARKET POLICIES ACTIVE LABOR MARKET PROGRAMS ACTIVE LABOUR ACTIVE LABOUR MARKET ACTIVE LABOUR MARKET POLICIES AGGREGATE DEMAND AGRICULTURE BENCHMARK BOND BUSINESS CYCLES CENTRAL BANK COMPLICATIONS CONSTANT RETURNS TO SCALE CROSS-SECTIONAL DATA DEPRECIATION DEPRECIATIONS DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISEQUILIBRIUM ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENTS ECONOMIC GROWTH ECONOMIC STRUCTURES ECONOMIC TRANSITION ELASTICITY EQUILIBRIUM UNEMPLOYMENT ESTIMATED PARAMETERS EXCHANGE RATE EXTERNAL SHOCKS EXTERNALITIES FIRM LEVEL FISCAL DEFICITS FISCAL SUBSIDIES FUTURE RESEARCH GOVERNMENT SUBSIDIES HIGH UNEMPLOYMENT HIGH UNEMPLOYMENT RATE HIGH UNEMPLOYMENT RATES HIGH WAGE HUMAN CAPITAL INCOME INCREASING RETURNS INCREASING RETURNS TO SCALE INEFFICIENCY INTEREST RATE INTEREST RATES JOB CREATION JOB DESTRUCTION JOB SEARCH JOB SHIFTS JOB VACANCIES JOBS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET CONDITIONS LABOR MARKET INDICATORS LABOR MARKET INSTITUTIONS LABOR MARKET TURNOVER LABOR MARKETS LABOR MOBILITY LABOR OFFICE LABOR TURNOVER LABOUR LABOUR FORCE LABOUR MARKET LABOUR MARKETS LABOUR OFFICE LOW INTEREST RATES LOW UNEMPLOYMENT LOW UNEMPLOYMENT RATE MACROECONOMIC POLICIES MARKET ECONOMIES MARKET ECONOMY MULTIPLE EQUILIBRIA NATIONAL COUNCIL NATURAL GAS NEW JOBS OPEN UNEMPLOYMENT OPTIMIZATION POLICY DISCUSSIONS POLICY RESEARCH POLICY RESEARCH WORKING PAPER POLITICAL ECONOMY POPULATION SETTLEMENTS POSITIVE EXTERNALITY PRIVATE SECTOR PROBABILITIES PROBABILITY PROGRESS PUBLIC SECTOR EMPLOYMENT RECESSION REGIONAL UNEMPLOYMENT RESPECT RISING UNEMPLOYMENT SAFETY SAFETY NET SCALE EFFECT SCALE EFFECTS SERVICE SECTOR SKILL GROUPS SOCIAL POLICIES STOCKS STRUCTURAL CHANGE TRAINING PROGRAMS TRANSITION ECONOMIES UNEMPLOYED UNEMPLOYMENT UNEMPLOYMENT DURATION UNEMPLOYMENT EQUILIBRIUM UNEMPLOYMENT OUTCOME UNEMPLOYMENT OUTCOMES UNEMPLOYMENT PROBLEM UNEMPLOYMENT RATE UNEMPLOYMENT RATES VALUABLE WAGE LEVEL WORKER WORKERS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090107090518 http://hdl.handle.net/10986/4008

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Summary:	The paper tests three hypotheses about the causes of unemployment in the Central-East European transition economies and in a benchmark market economy (Western part of Germany). The first hypothesis (H1) is that unemployment is caused by inefficient matching. Hypothesis 2 (H2) is that unemployment is caused by low demand. Hypothesis 3 (H3) is that restructuring is at work. Our estimates suggest that the west and east German parts of Germany, Czech Republic and Slovakia are consistent with H2 and H3. Hungary provides limited support to all three hypotheses. Poland is consistent with H1. The economies in question hence contain one broad group of countries and one or two special cases. The group comprises the Czech Republic, Hungary, Slovak Republic and (possibly) East Germany. These countries resemble West Germany in that they display increasing returns to scale in matching and unemployment appears to be driven by restructuring and low demand. The East German case is complex because of its major active labor market policies and a negative trend in efficiency in matching. In some sense, East Germany resembles more Poland, which in addition to restructuring and low demand for labor appears to suffer from a structural mismatch reflected in relatively low returns to scale in matching. Finally, our data provide evidence that goes counter to one of the main predictions of the theories of transition, namely that the turnover (inflow) rate in the transition countries would rise dramatically at the start of the transition, be temporarily very high and gradually decline and approach the level observed in otherwise similar market economies such as West Germany.

Unemployment and Worker-Firm Matching : Theory and Evidence from East and West Europe

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