Labour market transitions and unemployment duration: Evidence from Bulgarian and Polish micro‐data1

The segmentation of the labour market is one of the most striking characteristics of the transition process in Central and Eastern European countries. Not only do the young, unskilled workers and women face a high risk of unemployment, but joblessness also varies significantly geographically. This paper sheds some light on labour market segmentation in transition countries by analysing individual records of individuals registered at the labour offices of two Polish regions (Warsaw and Ciechanov and two Bulgarian regions (Sofia and Botevgrad) over the initial three to four years of the transition to a market economy. The empirical results confirm the existence of highly selective firing and hiring processes in the Polish and Bulgarian labour markets. Overall, unskilled or poorly educated workers have the highest probability of becoming unemployed and remaining without a job for a long period of time. We also analysed the determinants of unemployment duration across regions and over time using a piece‐wise constant hazard model with multiple destinations, i.e. employment and exit from the labour force. The results suggest that the unemployed with a high education and previous experience in the private sector have a higher probability of getting a new job, especially in the more dynamic labour markets, while those without previous work experience tend to stay unemployed for a longer period of time and often leave the labour market. The econometric results also suggest that the reforms of the unemployment benefit systems have produced important effects on unemployment flows.