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Skill shortages and labor market outcomes in Central Europe

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  • Brixiova, Zuzana
  • Li, Wenli
  • Yousef, Tarik

Abstract

The new Central European members of the EU have been characterized by low employment rates, especially among unskilled workers, despite the GDP recoveries and large private sector shares in output and employment. Evidence points at skill shortages in Central Europe as a key impediment to faster labor reallocation and convergence to the EU-15 employment structures. In this paper, we develop a simple model of labor reallocation with transaction costs and show how skill shortages can inhibit firm creation and increase income inequality. We use the model to examine the impact of training subsidies and their financing on skill acquisition and start-ups of new private firms, and show that the positive effect of subsidies would be mostly offset by high wage taxes. Shifting financing from wage to consumption taxes would improve incentives for workers' training and firm start-ups, while relying more on income taxes could reduce the income gap between workers and entrepreneurs.

Suggested Citation

  • Brixiova, Zuzana & Li, Wenli & Yousef, Tarik, 2009. "Skill shortages and labor market outcomes in Central Europe," Economic Systems, Elsevier, vol. 33(1), pages 45-59, March.
    • Handle: RePEc:eee:ecosys:v:33:y:2009:i:1:p:45-59
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    5. World Bank, 2011. "Challenges to Enterprise Performance in the Face of the Financial Crisis : Eastern Europe and Central Asia," World Bank Publications - Books, The World Bank Group, number 2316.
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    7. Zuzana Brixiova, 2009. "Labour Market Flexibility in Estonia: What more Can be Done?," OECD Economics Department Working Papers 697, OECD Publishing.
    8. Judit Albiol-Sánchez & Luis Diaz-Serrano & Mercedes Teruel, 2021. "The Transition to Self-Employment and Perceived Skill-Mismatches: Panel Data Evidence from Eleven EU Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 153(3), pages 957-977, February.
    9. Constantin Anghelache & Madalina – Gabriela Anghel & Alina – Georgiana Solomon, 2017. "The Effect of Migration on Labor Resources," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 7(3), pages 6-13, July.
    10. Spiros Bougheas & Raymond Riezman, 2010. "Market Entry Costs, Underemployment and International Trade," Discussion Papers 10/18, University of Nottingham, GEP.
    11. Albiol, Judit & Díaz Serrano, Lluís & Teruel, Mercedes, 2014. "Is Self-employment a Way to Escape from Skill Mismatches?," Working Papers 2072/247652, Universitat Rovira i Virgili, Department of Economics.
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