Roma Employment in Hungary After the Post-Communist Transition

We analyze the magnitude and the causes of the low formal employment rate of the Roma in Hungary between 1993 and 2007. The employment rate of the Roma dropped dramatically around 1990. The ethnic employment gap has been 40 percentage points for both men and women and has stayed remarkably stable. Differences in education are the most important factor behind the gap, the number of children is important for female employment, and geographic differences play little role once education is controlled for. Conditional on employment, the gap in earnings is 0.3, and half of it is explained by educational differences.Roma minority, employment, education, Hungary

The Roma/Non-Roma Test Score Gap in Hungary

This paper documents and decomposes the test score gap between Roma and non-Roma 8th graders in Hungary in 2006. Our data connect national standardized test scores to an individual panel survey with detailed data on ethnicity and family background. The test score gap is approximately one standard deviation for both reading and mathematics, which is similar to the gap between African-American and White students of the same age group in the US in the 1980s. After accounting for on health, parenting, school fixed effects and family background, the gap disappears in reading and drops to 0.15 standard deviation in mathematics.

Roma children in the transformational recession - Widening ethnic schooling gap and Roma poverty in post-communist Hungary

The Roma or "Gypsies" are Europe's largest and poorest ethnic minority. Nearly 80 per cent of them live in the former communist countries of Central and Eastern Europe. The Roma - Non-Roma educational gap, always substantial but slowly closing in the communist years, widened again after the collapse of the communist system in Hungary. Using Hungarian Roma data from the mid-1990's and a comparable national sample, we estimate multinomial probability models for dropping out after primary school (8th grade), continuing in vocational training school, or continuing in a secondary school with a maturity examination (necessary for college entrance). Our results indicate that long-term poverty of the Roma is strongly associated with their high drop-out rate after 8th grade. Roma poverty has increased considerably with the massive layoffs of unskilled workers since the mid-1980's. We find that the younger a child is when his/her father is laid off the more likely he/she is to discontinue schooling after 8th grade. We conclude that the collapse of Roma employment has been in part responsible for the widening ethnic gap in education. Equal opportunities for the next Roma generation are therefore jeopardized unless policy helps overcoming the adverse effects of long-term poverty on schooling outcomes.Roma minority, education, poverty, Hungary

The Roma/non-Roma Test Score Gap in Hungary

This paper documents and decomposes the test score gap between Roma and non-Roma 8th graders in Hungary in 2006. Our data connect national standardized test scores to an individual panel survey with detailed data on ethnicity and family background. The test score gap is approximately one standard deviation for both reading and mathematics, which is similar to the gap between African-American and White students of the same age group in the U.S. in the 1980s. After accounting for on health, parenting, school fixed effects and family background, the gap disappears in reading and drops to 0.15 standard deviation in mathematics. Health, parenting and schools explain most of the gap, but ethnic differences in those are almost entirely accounted for by differences in parental education and income.test score gap, Roma minority, Hungary

Expected long-term budgetary benefits to Roma education in Hungary

This study estimates the expected long-term budgetary benefits to investing into Roma education in Hungary. By budgetary benefits we mean the direct financial benefits to the national budget. The main idea is that investing extra public money into Roma education would pay off even in fiscal terms. In order to be successful, investments should take place in early childhood. Successful investments are also expensive. But if it is done the right way, such investments more than recoup their costs in terms of extra tax benefits in the future. This study looks at the expected budgetary benefits of a successful investment. It does no deal with how to achieve success. The motivating idea behind our analysis is the notion that investing into somebody's education will lead to benefits not only to the person in question but also to the whole society. We consider these social benefits in a very narrow sense: we make use the fact that in a typical modern society, more education makes people contribute more to the national budget and/or receive less transfers from it. The increased contributions and decreased transfers make up the net budgetary benefits. Net budgetary benefits measure a return on investments into education, very much like returns on any other financial investment. If expected returns more than compensate for such investments, it is in the very narrow interest of the government to invest into Roma education, even setting aside other consideration. We estimate the net benefit of an extra investment (on top of existing pre-school and primary school financing) that enables a young Roma to successfully complete secondary school. We consider an investment that takes place (starts at) at age 4, i.e. we calculate the long-term benefits discounted to age 4. We estimate returns to an investment that makes Roma children complete the maturity examination ("erettsegi") and opens the road to college, instead of stopping at 8 grades of primary school (or dropping out of secondary school). We consider seven channels: personal income tax on income earned from registered fulltime employment, social security contributions paid by employers and employees on earned income, unemployment benefits, means-tested welfare benefits, earning from public employment projects, value added and excise tax on consumption, and incarceration costs. We adjust our estimates by the extra costs of increased secondary and college education. We use large sample surveys, aggregate administrative data, and tax and contribution rules to estimate the necessary parameters. The analysis is nonexperimental and is based on national estimates adjusted for Roma differences. The lack of detailed Roma data and lack of experimental evidence makes interpretation somewhat problematic. We therefore carry out extensive robustness checks for analyzing alternative assumptions. One should keep in mind that, for lack of appropriate data, we leave out important channels such as old-age pensions, disability pensions, childcare benefits, and health care costs. Including most of these channels would most likely increase the estimated benefits to educational investments. Our estimates are therefore most likely lower bounds for the expected budgetary benefits. The results indicate that an investment that makes one young Roma successfully complete secondary school would yield significant direct long-term benefits to the national budget. According to our benchmark estimate, discounted to age 4 (a possible starting age for such an investment), the present value of the future benefits is about HUF 19M (EUR 70,000) relative to the value the government would collect on the representative person in case if she had not continued her studies after the primary school. The benefits are somewhat smaller if (without the suggested early childhood educational investment), the young Roma person finished vocational training school (HUF 15M, EUR 55,000). The estimated returns are sensitive to the discount rate, the assumed wage growth, the college completion rate after secondary school, and the race specific employment and wage differentials (to some extent due to labor market discrimination). But even our most conservative estimates suggest that benefits are least HUF 7M - 9M. We formulate all results in terms of the benefits of an investment that makes one child successfully complete secondary school, for methodological convenience. Naturally, no investment is certain to bring such a result. When comparing benefits to costs, one has to factor in the success probabilities. For example, if an investment increases the chance of secondary school completion by 20 percentage points, i.e. one child out of five gets there as a result of the investment, benchmark benefits relative to 8 grades are HUF 3.8M (19M/5). In other words, 3.8M per child investment would therefore break even with a 20% success rate. Even by looking at our most conservative estimates, any investment with such a success rate is almost sure to yield a positive return if costs are HUF 1.8M or less per child. Overwhelmingly, the benefits would come from increased government revenues, from personal income tax and employer/employee contributions after earned income. Savings on unemployment insurance, welfare benefits and public employment projects are negligible, and savings on incarceration costs are also small. Larger value added tax benefits on consumption are also sizable.Roma Minority, Education, Poverty, Hungary

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.

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.

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.