engleski

Essays on the labour market in a post-transition economy: the case of Croatia

This doctoral dissertation studies the reasons behind high and persistent unemployment in Croatia with the help of the search and matching theory. Given that the problem of unemployment has adverse effects not only on individuals but also on societies as a whole, finding a solution to this problem should be one of the primary aims of economic policy. However, in order to find a solution one first needs to discover the reasons behind the appearance, existence, and persistence of huge unemployment in modern economies. The main goal of the dissertation is to extend the existing search and matching models so that they better correspond to the specific situation in the Croatian labour market, but also to take into account their applicability in other transition countries as well as in the rest of Europe. A combination of the methodology that emerges from the equilibrium search and matching theory and empirical evidence from Croatia should enable us to unravel the most important factors behind high unemployment in Croatia. Broad elucidation of some of the main aspects of the Croatian labour market should also help in revealing important weaknesses of the current institutional structure and proposing necessary measures to policy makers. All these issues are examined through three different parts (essays), where each of the essays deals with a specific research topic, but all three are connected through their main aim - to discover the main cause of high unemployment in Croatia with the help of equilibrium search and matching theory. The first essay studies the employment prospects of different types of job- seekers in Croatia by upgrading the model of adverse selection with firing costs. The main assumption of the model is that employers perceive labour market status as a signal of job-seekers’ productivity, which means that the unemployed group is being perceived as less productive. Since firing costs are high, employers cannot ‘afford’ to hire from this group and, thus, there is an adverse selection in the labour market. Based on the Labour Force Survey data for the 1996-2009 period, the results suggest that there is an adverse selection in the Croatian labour market. The reservation wage, as the main determinant of firing costs in the model, positively affects the probability of changing job for employed job-seekers, while it has a negative impact on the probability of ‘switching’ for unemployed job-seekers. However, if the reservation wage is treated as endogenous in the model, instrumental variable estimation shows that its effect on the probability of ‘switching’ becomes positive and significant only for the unemployed group. This is explained by the effect of educational attainment, which serves as the ‘instrument’ and obviously works as an efficient signal for workers’ productivity among the unemployed. Nevertheless, the effect of the reservation wage on employment probabilities for both groups is declining over time, especially after the legislative reform in 2004, indicating lower impact of firing costs. Finally, the hypothesis on self- discrimination of the unemployed receiving unemployment benefits is tested, confirming theoretical predictions of positive impact of unemployment benefits on the reservation wage, and a negative one on the probability of finding a job. The second essay investigates the efficiency of the matching process in the Croatian labour market by panel stochastic frontier estimation of the matching function. The empirical analysis is conducted on a regional level using regional office-level data obtained from the Croatian Employment Service on a monthly basis in the period 2000-2011. The obtained results suggest that the efficiency is rising over time, with great variations across regions. In order to explore these variations, structural characteristics of the labour market together with some policy variables are included into the second-stage estimation. Among structural variables, the proportion of agricultural and high-skilled workers have the most important positive effect on the matching efficiency, while the local unemployment rate and the share of low- skilled and workers without any experience among job-seekers have the most important negative effect. As far as policy variables are concerned, both active labour market programmes and the number of high-skilled employees in regional employment offices positively affect the matching efficiency. Additionally, when regional income per capita is included into the model it shows positive impact on the matching efficiency, indicating that demand fluctuations also affect the matching process. In order to get consistent estimates, panel stochastic frontier model transformation is applied. Preliminary results show that there is no major difference in estimated mean technical efficiency coefficients in comparison to the original model, while the opposite is true for the covariates of technical efficiency. The importance of structural unemployment in the Croatian labour market is examined in the third essay via occupational mismatch between vacancies and unemployment in the period 2004- 2011. The matching function which incorporates the effect of occupational mismatch on the flow of filled vacancies is used not only for the aggregate flow of filled vacancies but also for different submarkets based on the grouping of similar occupations (white-collar and blue- collar occupations). The estimated parameters from regressions are used to calculate the amount of unemployment that can be attributed to occupational mismatch for each submarket as well as for the aggregate function. According to the obtained results, it appears that occupational mismatch does not have an impact on the aggregate flow of filled vacancies, that is, on the matching process in the overall labour market. However, when the labour market is examined through its submarkets, i.e., similar occupational groups, occupational mismatch (significantly) positively affects the matching process in the market for white- collars, while it has a negative (insignificant) impact in the (sub)market for blue-collar occupations. Furthermore, the portion of total unemployment that can be attributed to occupational mismatch is estimated to be only up to 6%, which evidently cannot explain the high and persistent unemployment in Croatia. The portion of unemployment attributed to mismatch in different submarkets varies greatly.

matching; adverse selection; firing costs; unemployment; efficiency; stochastic frontier; occupations; mismatch; transition; Croatia

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