How Flexible are Labour Markets in the EU Accession Countries Poland, Hungary and the Czech Republic?
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How Flexible are Labour Markets in the EU Accession Countries Poland, Hungary and the Czech Republic? HORST FELDMANN Department of Economics, University of Tu¨bingen, Nauklerstr. 47, D-72074 Tu¨bingen, Germany. E-mail: [email protected] Over the next few years, Poland, Hungary and the Czech Republic will experience fundamental structural changes in their economies, not least because of their accession to the European Union. The economic adjustment processes that will take place in these countries require a high degree of labour market flexibility. This paper analyses whether the labour markets in Poland, Hungary and the Czech Republic are flexible enough for these processes to take place smoothly. In particular, it discusses the following areas: labour force participation, qualification and regional mobility of the labour force, wage-setting systems and statutory minimum wages, labour taxes, government regulations affecting working time and protection against dismissal, and public job-placement services. The paper reveals that there are impediments to labour market flexibility in all of these areas. It also shows that the specific rigidities vary from country to country, both in nature and in intensity. Comparative Economic Studies (2004) 46, 272–310. doi:10.1057/palgrave.ces.8100026
Keywords: European integration, labour market flexibility, labour market institutions, unemployment
JEL Classifications: F0, J2, J3, J5, J6
INTRODUCTION By joining the European Union, Poland, Hungary and the Czech Republic hope to achieve in the foreseeable future the same level of prosperity as the present EU.1 However, in order to achieve this goal, it will be necessary to 1
In 2002, their GDP per capita (converted at purchasing power parities) amounted to only 39% (Poland), 57% (Hungary) and 60% (Czech Republic) of the EU average (European Commission, 2003, p. 42).
Horst Feldmann Labour Market Flexibility in Poland, Hungary and the Czech Republic
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substantially increase labour productivity. Additionally, the economic catching-up process will inevitably be accompanied by fundamental structural changes. For example, it may be expected that the sectoral employment structure will become more similar to that of the present EU. In all three countries, the share of industrial employment is still much higher than in the EU. Hungary and especially Poland also have a larger share of agricultural employment. Furthermore, in the course of the economic catching-up process the employment structure will change considerably within the three sectors as well. In particular, it will tend to shift towards more demanding occupations. In the service sector, for example, the three accession countries’ employment rates in finance and business services still are far below the EU average. The accession countries’ foreign trade will shift more and more from processing work to the export of human capital-intensive goods. Foreign investors will probably contribute decisively to this structural change. Access
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