Patterns of Non-employment in Hungary’s Least Developed Regions

On the eve of 1999 the Hungarian government introduced a series of radical reforms, including a cutback of unemployment insurance benefits and the abolition of unemployment assistance for workers who have exhausted their unemployment insurance (‘benefit exhausters’), on the assumption that the high levels of unemployment benefits combined with the availability of informal employment, accounted for the low level of job-search activity and job-finding. This research is based on discrete time duration analysis using Labor Force Survey (LFS) panel data from 1997–1998 and examines the characteristics of non-employment in Hungary’s poorest regions where 50% of the working-age population is formally nonemployed, and explores the possible negative impact of the reform. In general, we found that the data do not support the assumption that transition-to-work probability is strongly affected by benefit receipt, and moreover raise concerns as to the impact of the reform for the poorest regions in terms of ‘welfare risk.’ Research for this paper was made possible by the “Social Consequences of Economic Transformation in East-Central Europe” (SOCO) program (Institute for Human Sciences, Vienna), which is financed by the Austrian Federal Chancellery’s “Fund for Co-operation with Central and Eastern Europe,” and by the Ford Foundation, New York. Edited and revised by Dr. Clare Tame. Managing Editor: Dr. Marianne Obi (SOCO). The views expressed in this paper are entirely the authors’ own, and do not necessarily represent those of SOCO/IWM. Acknowledgements: The author wishes to thank Zsombor Gergely for his contribution to the paper, Gyula Nagy and Gábor Kõrösi for helpful advice, and Mária Lackó for allowing access to her estimates on the size of the informal economy. ♣ Institute of Economics (Budapest), Davidson Institute (Ann Arbor/USA), and IZA (Bonn/Germany)