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András Simonovits, Institute of Economics, HAS; Budapest University of Technology; Central European University
 

Transition, Employment and Subsidy for Low-skilled Labour
(joint paper with Katalin Balla, Gábor Kertesi and János Köll)
wiiw, 25 April 2005, 1 p.m.
 
In their seminal paper, Aghion and Blanchard (1994) have modelled the dynamic interconnection between transition and employment. A key feature of the transition (not analysed by Aghion and Blanchard) is the huge difference between the unemployment rates of skilled (H) and unskilled (L) labour. Generalizing the Aghion-Blanchard-model, in this paper we prove that by introducing an appropriate subsidy, the employment of L-labour can be significantly increased without essentially diminishing that of H-labour. Since the subsidy increases the long-term net wage of L and decreases that of H, there is a limit on subsidies. The reduction of excessive unemployment benefit is also useful.

Keywords: transition, privatization, unemployment, subsidies
JEL classification: E62, H23 and P30
 
 
 
 

 
 


 		  


 		  


 
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