Labor hoarding and unemployment in central and eastern Europe (1981--1995)

Martin Kouadio Konan, Boston College

Abstract

The purpose of this dissertation is to measure labor hoarding in Poland and Hungary over the period 1981-1995 and see whether changes in labor hoarding in those economies are consistent with high unemployment observed over the transition period to market economies. Has labor hoarding decreased and created open unemployment? Two production-function-based models are used to measure labor hoarding: frontier production models (deterministic and stochastic) and an econometric model of producer behavior. Contrary to expectations, the results of the frontier production models reveal that labor hoarding increased in the first two or three years of the transition, then gradually decreased. There are really three limitations to the frontier models, however. First, labor hoarding is measured relative to the best practice year over the sample period. Changes in, rather than levels of, labor hoarding are what really matters under this approach. Second, the deterministic model generates no t-statistics. Third, the frontier models assume a fixed coefficients technology or at least a homothetic technology under the assumption of a fixed ratio of factor prices. Therefore, the results not only are counterintuitive but also are based on models that are too restrictive and uninformative. The econometric model of producer behavior addresses these issues. The model is used to determine whether there is a statistically significant spread between wage rates and labor's marginal revenue product. The results of the model suggest that labor hoarding exists in Poland and Hungary but is lower (and decreasing) for the period 1990-1993 than it is for the period 1981-1989. These results are in accord with what the previous studies on labor hoarding predicted. To test the validity of the model, the model of producer behavior is applied to French and U.S. data over 1981-1993. As expected, one finds that labor hoarding is lower in France and not only lower but statistically insignificant in the U.S. One advantage of the producer behavior model is that the levels of labor hoarding can be derived directly.

Recommended Citation

Martin Kouadio Konan, "Labor hoarding and unemployment in central and eastern Europe (1981--1995)" (January 1, 1999). Boston College Dissertations and Theses. Paper AAI9954996.
http://escholarship.bc.edu/dissertations/AAI9954996