Unemployment, Labour Market Institutions and Structural Change in Eastern Europe

This paper surveys the emerging labour markets of the transforming economies of Central and Eastern Europe. Pissarides's model of equilibrium unemployment highlights the dynamics of labour markets as an important factor in the transformation, and labour market institutions will determine the long-run unemployment rate. A brief survey of institutions reveals considerable cross-country variance. Using data from Czech and Slovak employment districts, a matching function is successfully estimated. The flow approach to labour markets holds normative implications for the optimal closure or restructuring of the public sector, which are derived. The optimal closure policy is a `mixed-bang' neither a `big-bang' nor benign neglect is optimal.Eastern Europe; Labour Markets; Matching Function; Transformation; Unemployment Benefits