Labour market response to economic crisis in Central Europe: is there room for common policy approach?

Abstract

ABSTRACT. Our analysis confirms a lower degree of fluidity on Polish/Czech labour markets compared to Austria. In particular, we find evidence on higher employment rigidity and on lower employability of unemployed in Poland and Czech Republic. The major employment policy challenge faced by Poland and the Czech Republic is actually embodied in much lower job finding prospects of both prime-age and young unemployed in comparison with Austria. In addition, Austrian school-leavers, university graduates or those re-entering the labour market after parental leave are much more likely to find a job than young labour market entrants in the two remaining countries. Finally, Austrian labour market appears to be most flexible also when comparing the contributions of particular gross flows to unemployment rate dynamics.Keywords: Austria, Czech Republic, EU-SILC, gross labour market flows, longitudinal data, Poland, transitional probability, unemployment.JEL Classification : E24, J64(ProQuest: ... denotes formulae omitted.)IntroductionThe labour market's ability to function as macroeconomic equilibrating channel is equally crucial for Eurozone members and countries which attempt to join the monetary union. In this article we address the ways in which central European labour markets have responded to Great Recession. More specifically, we explore the flow approach to identify the presence of common/distinctive features of labour market adjustments in three countries: Austria, Czech Republic and Poland, each of them being an interesting topic of special research (see e.g. Strielkowski and Hnevkovský, 2013). Special emphasis is on comparisons between the dynamics of the youth and prime-age labour markets, since youth unemployment appears to represent the major future labour market policy challenge (ILO, 2013). The proposed analysis is based on EU-SILC longitudinal data for the period 2008-2011. Austria serves a reference, low unemployment country. The main aim is to detect the departure (and the corresponding policy challenges) of the remaining countries from the patterns of labour market dynamics and adjustment paths that are typical for Austria.We look into the gross labour market flows and flow transition rates (also dented as transition probabilities) of shifting between the three labour market states represented by employment, unemployment, and inactivity (Abowd & Zellner, 1985; Blanchard & Diamond, 1990; Gomes, 2009; Silverstone & Bell, 2010; Elsby et al., 2011; ECB, 2012; Flek & Mysikova, 2013). Gross flows represent the movements of individuals between the labour market states in absolute numbers and constitute a proxy for assessing the labour market fluidity at aggregate level. Moreover, our analysis of gross labour market flows allows us to establish those that are crucial, comparable in size, or of minor importance for the entire labour market dynamics.Flow transition rates are treated as a first-order Markov process, where the transitional probability of moving from previous to current labour market status depends exclusively on the individual's previous status. This involves the rates at which a worker is exposed to a risk of job loss, of finding a job, of moving in and out of inactivity etc. The analysis of flow transition rates is of potential policy relevance as it clearly indicates the gaps between labour market prospects of individuals across countries, time and age categories. This simultaneously provides us with the specific targets and benchmarks for policies aimed at lowering those gaps.Another analytical possibility offered by a flow approach is to demonstrate how do movements of workers in and out of unemployment account for changes in unemployment rates (Dixon et al., 2011). Which gross flows, and to which extent, are behind the observed unemployment rate increases? Is the role of the respective gross flows comparable across countries, time and age categories? …