Labor Market Institutions and Unemployment Dynamics in Transition Economies
This paper propses and solves a matching model of job reallocation between the public and private sector, and it shows that cross country differences in labor market institutions are broadly consistent with the dynamics of unemployment and real wages in transition economies. Two main results arise form the analysis. First, higher unemployment benefits speed up job destruction in the state sector and private job creation at the early stages of transition, but they increase unemployment in the long run. Second, higher minimum wages can theoretically speed up the reallocation process without affecting the long run equilibrium. Copyright 1998, International Monetary Fund
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