Transformation before the 'Transition' (Employment and Wage Setting in Hungarian Firms 1986-89)

The paper addresses the question why Hungarian state enterprises cut employment by two-digit percentages in the last years of state socialism. It argues that job destruction was a result of changing incentives and liberties (harder budget constraint, stronger insider power, loosening political restrictions on downsizing) rather than of market-related shocks. Changing the inherited combination of output, employment, and wages could be in the interest of workers, managers, or both parties. The implications for wages and profits were hard to predict but the concievable scenarios of adjustment unanimously implied lower employment. The hypotheses are tested against data on output, employment, wages and profits from a panel of 2666 firms observed in 1986 and 1989.

Workplace Literacy Requirements and Unskilled Employment in East-Central and Western Europe - Evidence from the International Adult Literacy Survey (IALS)

Primary degree holders have extraordinarily low employment rates in Central and East European (CEE) countries, a bias that largely contributes to their low levels of aggregate employment. The paper looks at the possible role for skills mismatch in explaining this failure. The analysis is based on data from the IALS, an international skills survey conducted in 1994-98. Multiple choice models are used to study how educational groups and jobs requiring literacy and numeracy were matched in the CEEs (Czech Republic, Hungary, Poland and Slovenia) and two groups of West-European countries. The results suggest that selection to skill-intensive jobs was more severely biased against the less-educated in the CEEs than in the rest of Europe including countries hit by high unskilled unemployment at the time of the survey (UK, Ireland, Finland). The paper concludes that the skill deficiencies of workers with primary and apprentice-based vocational qualification largely contribute to the unskilled unemployment problem in the former Communist countries, more than they do in mature European market economies.Labor Economics, Human Capital, Skills

Wage Inequality in East-Central Europe

The substantial rise of wage inequality in Central and Eastern Europe has attracted the attention of sociologists, concerned with social equity, and economists for whom it indicated the growing differentiation and restructuring of relative prices on the labour market. This research wanted to study wage inequalities from the second point of view by analyzing relative wages during the transition period in Hungary and Romania. In this paper we would like to discuss the policy relevance of the research, summarize the main empirical findings and draw conclusions for policy.

Whose Children Gain from Starting School Later? Evidence from Hungary

We look at the effect of school starting age on standardized test scores using data covering all grade four and grade eight students in Hungary. Instrumental variables estimates of the local average treatment effect suggest that children generally gain from starting school one year later and the effects are much stronger in the case of students coming from low-educated families. We test the robustness of the results by allowing for heterogeneity in the age effect, distinguishing between fields of testing, using discontinuity samples and relying on alternative data. The hypothesis that delayed entry has a stronger impact on low-status children is supported by the robustness checks. The observed patterns are most probably explained by the better performance of kindergartens, as opposed to schools, in developing the skills of low-status children.education, student test scores, enrolment age, identification

Economic Transformation and the Return to Human Capital - The Case of Hungary, 1986-1996

Millions of East-Europeans started businesses during the transformational recession but, according to a wide-spread interpretation, many of them did so only temporarily and 'unwillingly' under the threat of unemployment. The paper looks at the relevance of the 'disguised unemployment approach to entrepreneurship' using regional data.It first examines how net flows into self-employment were affected by corporate labour demand in Hungarian and Romanian regions. Second, it looks at the responses of self-employment and unemployment to increases in labour demand at later stages of the transition. Finally,.it makes attempts to measure the 'wage push' of selfemployment. The evidence suggests that self-employment and unemployment were guided by rather different forces In Hungary. By contrast, the Romanian agriculture absorbed a non-trivial proportion of the potential unemployed following the unique land reform and the introduction of a restrictive UI system. The data suggest larger flows into self-employment in regions hit hard by the transition shock but they do not indicate net flows from self-employment back to paid employment in the few Romanian regions where labour demand was rising between 1993 and 1996. The pool of private farmers failed to behave as a 'reserve army' in this period and did not have strong influence on wage claims at the enterprise sector.

Whose Children Gain from Starting School Later? Evidence from Hungary

We look at the effect of school starting age on standardized test scores using data covering all grade four and grade eight students in Hungary. Instrumental variables estimates of the local average treatment effect suggest that children generally gain from starting school one year later and the effects are much stronger in the case of students coming from low-educated families. We test the robustness of the results by allowing for heterogeneity in the age effect, distinguishing between fields of testing, using discontinuity samples and relying on alternative data. The hypothesis that delayed entry has a stronger impact on low-status children is supported by the robustness checks. The observed patterns are most probably explained by the better performance of kindergartens, as opposed to schools, in developing the skills of low-status children.education, student test scores, enrolment age, identification

Labour Demand with Heterogeneous Labour Inputs after the Transition in Hungary, 1992-1999 - and the Potential Consequences of the Increase of Minimum Wage in 2001 and 2002

The paper analyses changes in the demand for unskilled, young skilled, and older skilled workers during the post-communist transition in Hungary. Systems of cost share equations derived from the translog cost function are estimated for cross-sections of large firms observed in the period 1992-99. Following the 'transformational recession' the own-price elasticities of labour and capital were stabilized at levels observed in several developed market economies. Unskilled and skilled labour are estimated to be p-complements, and younger and older skilled workers p-substitutes. Capital and labour appear to be p-substitutes with unskilled labour having the highest elasticity of substitution. Further results hint at the existence of nonnegligible scale effects and the non-neutrality of technical change. The estimated wage elasticities give us the opportunity to evaluate consequences of some governmental policies. As minimum wage was doubled in nominal terms between 1999 and 2002 in Hungary it was evident to apply these results to this highly relevant issue. In the second part of the paper we try to evaluate the potential demand consequences of this. Based on the earnings distributions of the Wage Survey of 1999 (a large individual level data set) we make several predictions concerning these consequences.

The Employment Effects of Nearly Doubling the Minimum Wage - The Case of Hungary

The effect of minimum wages on employment has been a matter of debate for more than a decade. Apart from a few cases (Puerto Rico, Indonesia, Columbia) the empirical works analysed the aftermaths of minor increases in the minimum wage, and yielded mixed results. Hungary 2000-2002 provides a unique opportunity to look at the effects of an exceptionally large minimum wage hike in a relatively developed market economy. Unexpectedly, the country's right-wing government increased the statutory minimum by 96 per cent (XX per cent in real terms) in only two steps between December 2000 and January 2002. The paper looks at the short-run effects of the first hike (57 per cent). It finds that increasing the minimum wage significantly reduced employment in the small firm sector and adversely influenced the jobloss and job finding probabilities of low-wage workers. The effects appear to be stronger in low-wage segments of the market, and depressed regions, where the minimum wage bites deeper into the wage distribution.minimum wage, transition

Economic transformation and the revaluation of human capital - Hungary, 1986-1999

The paper analyses the evolution of relative wages using individual wage data, and the contribution of skills to productivity using firmlevel information from Hungary, 1986-99. Its main conclusion is that skills obsolescence was, and still is, an important aspect of postcommunist transition. The data suggest a general rise in the returns to education between 1989 and 1992. This, the paper argues, was just a mirror image of the collapse of demand for unskilled labour in a period of deep crisis when technological change was minimal, and the forces of the market just started to work. When market institutions were already at work, and modern technologies were implemented on a massive scale, the general appreciation of education stopped but the returns to experience continued to decline. Young and educated workers are paid increasing wages and their skills are estimated to yield higher productivity returns, especially in a modern environment. By contrast, neither productivity nor wages grew for the older cohorts of educated workers after 1992.

Unemployment, Wage Push and the Labour Cost Competitiveness of Regions - The Case of Hungary, 1986-1996

The paper analyses regional relative wages using individual and firmlevel data from Hungary 1986-96. In regions hit hard by the transition shock labour costs fell substantially; the estimated elasticities of wages with respect to regional unemployment were in a range typical of mature market economies already in 1992-93. In later stages of the transition the hard-hit rural regions lost a large part of their cost advantage vis-ê-vis Budapest and the central agglomeration for reasons including spatial diseconomies and falling search activity among the registered unemployed. The paper argues that the time path observed in Hungary (a U-curve of relative labour costs in crisis-hit regions) may prevail in other economies calling the attention to the limits of wage flexibility as a cure to persistent regional crises.