Unemployment and the Social Safety Net During Transitions to a Market Economy: Evidence from the Czech and Slovak Republics

Abstract

We investigate the remarkably short unemployment spells in the Czech Republic compared to Slovakia and other Central and East European economies. We estimate hazard functions and find that 40 to 50 percent of the difference in unemployment durations between the two republics is accounted for by differences in demographics and demand conditions. The remainder is explained by differences in coefficients, proxying the behavior of firms, individuals, and institutions. In both republics the unemployment compensation system has a moderately negative effect on the exit rate from unemployment. Policy makers hence have latitude in providing adequate social safety nets without jeopardizing efficiency.

JEL Classification: C41, H53, J23, J64, O15, P2