Unemployment Benefit Systems in Central and Eastern Europe: A Review of the 1990s
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Unemployment Benefit Systems in Central and Eastern Europe: A Review of the 1990s1 MILAN VODOPIVEC1, ANDREAS WO¨RGO¨TTER2 & DHUSHYANTH RAJU3 1
The World Bank, Washington, DC, USA. E-mail: [email protected] OECD, Paris 3 Cornell University, Ithaca, NY, USA. 2
The paper provides an overview of unemployment benefit systems in Central and Eastern Europe during the 1990s. It describes their institutional features (eligibility, the level and duration of benefits, and special rules), discusses issues arising in their implementation, and examines their performance. Income protection effects, derived from the empirical analysis of household income and expenditures surveys, pertain to the coverage, the average size of benefits in household income, and the targeting of benefits. Efficiency effects, obtained from a literature review, are related to the effects of benefits on the duration of unemployment spell, restructuring, and overall unemployment and employment rates. The evidence shows that (i) unemployment benefits were progressive; (ii) that, in countries with broad coverage and sizeable share of benefits in household incomes, they strongly reduced poverty; and (iii) that, similar to findings for developed economies, they created work disincentives. Comparative Economic Studies (2005) 47, 615–651. doi:10.1057/palgrave.ces.8100062
Keywords: unemployment benefits, poverty reduction, unemployment JEL Classifications: P2; J65 1
The authors would like to thank Gordon Betcherman, Carlos Silva-Jauregui, Wayne Vroman and two anonymous referees for valuable comments on an earlier version of the paper, Jakob Tomsˇe for excellent research assistance, and Leszek Kucharski, Gyula Nagy, and Jiri Vecernik for providing information on expenditures and participants of unemployment benefit systems in Poland, Hungary, and the Czech Republic, respectively. The views expressed in the paper do not necessarily reflect the opinion of the World Bank and the OECD. Andreas Wo¨rgo¨tter contributed to this paper while he was affiliated with the Institute for Advanced Studies in Vienna and the Central European University in Budapest. He expressed his private views which have no official character with respect to his current affiliation. When writing the paper, Dhushyanth Raju was a World Bank consultant.
M Vodopivec et al Unemployment Benefit Systems
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INTRODUCTION One of the most conspicuous consequences of the transition of former socialist economies has been the emergence of large-scale, open unemployment – a phenomenon unheard of before the transition. These economies have thus been confronted with the difficult task of providing income protection to the unemployed while avoiding undue fiscal costs and minimising the work disincentives created by such protection. Faced with the prospect of high unemployment, many transition economies introduced traditional, OECD-style unemployment insurance systems. The purpose of this paper is to evaluate these systems by examining their income protection as well as
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