Returns to Human Capital under the Communist Wage Grid and During the Transition to a Market Economy

Under communism, workers had their wages set according to a centrally-determined wage grid. In this paper we use new micro data on men to estimate returns to human capital under the communist wage grid and during the transition to a market economy. We use data from the Czech Republic because it is a leading transition economy in which the communist grid remained intact until the very end of the communist regime. We demonstrate that for decades the communist wage grid maintained extremely low rate of return on education, but that the return increased dramatically and equally in all ownership categories of firms during the transition. Our estimates also indicate that men's wage-experience profile was concave in both regimes and on average it did not change from the communist to the transition period. However, the de novo private firms display a more concave profile than SOEs and public administration. Contrary to earlier studies, we show that men's inter-industry wage structure changed substantially between 1989 and 1996.http://deepblue.lib.umich.edu/bitstream/2027.42/39656/3/wp272.pd

Returns to Human Capital under the Communist Wage Grid and During the Transition to a Market Economy

Under communism, workers had their wages set according to a centrally-determined wage grid. In this paper we use new micro data on men to estimate returns to human capital under the communist wage grid and during the transition to a market economy. We use data from the Czech Republic because it is a leading transition economy in which the communist grid remained intact until the very end of the communist regime. We demonstrate that for decades the communist wage grid maintained extremely low rate of return on education, but that the return increased dramatically and equally in all ownership categories of firms during the transition. Our estimates also indicate that men's wage-experience profile was concave in both regimes and on average it did not change from the communist to the transition period. However, the de novo private firms display a more concave profile than SOEs and public administration. Contrary to earlier studies, we show that men's inter-industry wage structure changed substantially between 1989 and 1996.

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 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.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

Microfoundations of the Wage Inflation in the Czech Republic

We investigate whether microfoundations might increase the predictive power of macroeconomic models of wage inflation. By comparing past predictions to observed values, we find that the Phillips curve with the average unemployment rate in districts with prevalently low unemployment rates delivers more accurate predictions of aggregated wage inflation than the Phillips curve with the overall unemployment rate. The identification of specific groups of districts is based on our estimates of the wage curve at the regional level, i.e. the relationship between the regional level of wages and regional unemployment. Real wages adjust to changes in local unemployment in districts with low unemployment rates, a low share of public sector employment, and for the short-term unemployed. On the other hand, the welfare system might represent a floor preventing downward wage adjustments in districts with high unemployment rates and for the long-term unemployed. In the public sector, wages are negotiated at the economy-wide level, while the variance in regional unemployment does not play a role.Panel data, partial adjustment model, Phillips curve, unemployment, wage curve.

Responses of Private and Public Schools to Voucher Funding:The Czech and Hungarian Experience

A state monopoly in schooling followed the collapse of communism in Central Europe. The centrally planned system was abandoned. Systems comparable with educational voucher scheme, also known as school choice system, were introduced in the Czech Republic and Hungary in the early 1990s. The newly established system of school financing allocates public funds according to the number of students enrolled in a school. Accredited non-state schools, private and religious, are also eligible for public subsidies. The scope and the form of these reforms represent a unique opportunity to test conflicting hypotheses of proponents and opponents of the voucher scheme. In this empirical analysis, we test fundamental theoretical predictions of the voucher model. Specifically, we test: i) whether non-state schools are established at locations where the supply of educational opportunities provided by state schools is low or of low quality, ii) whether state and non-state schools in such a system respond to changes in demand for education, and iii) whether state schools respond to competition from non-state schools. We use detailed school level data on the whole population of schools and data on regional conditions. In our econometric model we estimate education value added, instead of relying on absolute quality of school graduates. We find that non-state school emerge at locations with excess demand and lower quality state schools. We also find that greater competition from non-state schools creates incentives for state schools with the result that state schools slightly improve the quality of educational inputs used and significantly improve their output, quality of graduates. As concerns the technical schools, we find that non-state schools react to regional labor market conditions in terms of technical branch premium and unemployment rate. We do not find such reactions to market signals by state schools. We introduce this analysis with a review of non-state schools' development in the Czech Republic and Hungary during the 1990s.educational finance; government expenditures and education; occupational choice; labor productivity

Worker-firm Matching and Unemployment in Transition to a Market

In this paper we compare the nature and determinants of outflows from unemployment in the case of the Czech and Slovak Republics which in early 1990’s experienced a process close to a controlled experiment. Overall, our study suggests that the exceptionally low unemployment rate in the Czech Republic as compared to Slovakia and the other Central and East European economies has been brought about principally by (1) a rapid increase in vacancies along with unemployment, resulting in a balanced unemployment-vacancy situation at the aggregate as well as district level, (2) a major part played by vacancies and the newly unemployed in the outflow from unemployment, (3) a matching process with strongly increasing returns to scale throughout (rather than only in parts of) the transition period, and (4) ability to keep the long term unemployed at relatively low levels. Using the framework of matching functions we find that in many years the usual Cobb-Douglas specification and the hypothesis of constant returns to scale are rejected. A translog matching function with weak separability between the existing and newly unemployed is found to be the functional form best supported by the data. Our theoretical analysis also indicates that by not adjusting data for the varying size of districts or regions, previous studies may have generated estimates of the returns to scale of the matching function that were biased toward unity.

When the Future is not what it used to be: Lessons from the Western European Experience to Forecasting Education and Training in Transition Economies

In an era of rapid technological change, information exchange, and emergence of knowledge-intensive industries it is critical to be able to identify the future skill needs of the labour market. Growing unemployment in EU member states and pre-accession countries in Eastern Europe combined with technological changes which make the skills of a significant number of workers obsolescent each year demand adequate knowledge of medium- and long-term demand for specific skills. Some EU members states have developed employment forecasting methods to identify future skill requirements which take account of the sectoral, occupational, and educational and training factors which influence supply and demand in the labour market for skills. A number of countries in Eastern Europe which are preparing to join the EU are interested in developing employment forecasting models that would provide them with similar information relating to skills. Taking account of the requirements of the Single European Market and increasing international mobility, it is desirable that the pre-accession countries should develop models which, if possible, are comparable with existing methods of forecasting training and qualification needs in existing member states of the EU. This task requires regular medium-term forecasts which will extend the time horizon of decision makers beyond the current economic cycle, be applicable to the whole economy, allow speedy adjustment to changing circumstances, and which will take account of relevant factors such as investment plans, output and labour productivity forecasts, and technological change. The objective of this paper is to provide a summary of existing methods and data sets used to forecast education and training needs in four members of the European Union, in order to motivate similar work in three pre-accession countries. We first provide a detailed account of the different approaches to forecast education and training needs in France, Germany, Ireland and The Netherlands. For each of these countries, we consider the labour market data on which employment forecasts are based and the current methods in use, examine how data reliability and accuracy of forecasts are dealt with, and discuss the dissemination and usage of forecast information generated by those systems. We then look at the same range of issues for three pre-accession Central European countries (Czech Republic, Poland and Slovenia.) The paper concludes by suggesting a number of needed actions in preparation for developing an approach to forecasting education and training needs in the three pre-accession countries.http://deepblue.lib.umich.edu/bitstream/2027.42/39650/3/wp265.pd

When the Future is not what it used to be: Lessons from the Western European Experience to Forecasting Education and Training in Transition Economies

In an era of rapid technological change, information exchange, and emergence of knowledge-intensive industries it is critical to be able to identify the future skill needs of the labour market. Growing unemployment in EU member states and pre-accession countries in Eastern Europe combined with technological changes which make the skills of a significant number of workers obsolescent each year demand adequate knowledge of medium- and long-term demand for specific skills. Some EU members states have developed employment forecasting methods to identify future skill requirements which take account of the sectoral, occupational, and educational and training factors which influence supply and demand in the labour market for skills. A number of countries in Eastern Europe which are preparing to join the EU are interested in developing employment forecasting models that would provide them with similar information relating to skills. Taking account of the requirements of the Single European Market and increasing international mobility, it is desirable that the pre-accession countries should develop models which, if possible, are comparable with existing methods of forecasting training and qualification needs in existing member states of the EU. This task requires regular medium-term forecasts which will extend the time horizon of decision makers beyond the current economic cycle, be applicable to the whole economy, allow speedy adjustment to changing circumstances, and which will take account of relevant factors such as investment plans, output and labour productivity forecasts, and technological change. The objective of this paper is to provide a summary of existing methods and data sets used to forecast education and training needs in four members of the European Union, in order to motivate similar work in three pre-accession countries. We first provide a detailed account of the different approaches to forecast education and training needs in France, Germany, Ireland and The Netherlands. For each of these countries, we consider the labour market data on which employment forecasts are based and the current methods in use, examine how data reliability and accuracy of forecasts are dealt with, and discuss the dissemination and usage of forecast information generated by those systems. We then look at the same range of issues for three pre-accession Central European countries (Czech Republic, Poland and Slovenia.) The paper concludes by suggesting a number of needed actions in preparation for developing an approach to forecasting education and training needs in the three pre-accession countries.employment forecasting, education and training needs forecasting, labor market, transition

Is women's human capital valued more by markets than by planners?

Using micro data on women in the Czech Republic, we compare returns to various measures of human capital at three points in time, namely, the end of Communism (1989), in mid-transition (1996), and in late-transition (2002). We find dramatic increases in returns to education from 1989 to 1996 but no change from 1996 to 2002 and no differences in returns to education in state vs. privately-owned firms. We demonstrate that sheepskin or diploma effects exist in both regimes and rise over time; moreover, they are similar across firm ownership types. We find no difference between the returns to education obtained during Communism and the returns to schooling obtained during the transition. Wage–experience profiles do not change over time. The pattern and rates of increase in the returns to education over these three points in time are similar for women and men. In sum, markets pay women and men equally more for their human capital than did the planners; all of the adjustment occurred early in the transition and it was driven by market forces rather than private ownership

Unemployment In East and West Europe

In this paper, we use 1991-2005 panel data on the unemployed, vacancies, inflow into unemployment, and outflow from unemployment in five former communist economies and in the western part of Germany (a benchmark western economy) to examine the evolution of unemployment together with that of inflows into unemployment and vacancies. The comparison of the transition economies with an otherwise similar and spatially close market economy is useful because it enables us to identify the main differences and similarities in the evolution of the key variables, and thus draw conclusions as to whether different or similar factors cause high unemployment.http://deepblue.lib.umich.edu/bitstream/2027.42/51562/1/Labour 04-13-07_whole.pd