Speed of Transition, Unemployment Dynamics and Nonemployment Policies: Evidence from the Visegrad Countries

In Central and Eastern Europe the restructuring process of large state enterprises had the effect of increasing unemployment. Social policy expenditure, in particular nonemployment policies, grew faster then expected due to the need of financing the \textit{out of labor force} categories. The interactions among unemployment, speed of transition and nonemployment subsidies/pensions are studied taking into account the shrinking labor force during transition. The reallocation of workers from the state to the private sector imposed a heavy burden on the budget deficit due to the increased social policy expenditure. This combination of effects is captured by a model of the speed of transition, in which a non-constant labor force is considered as well as the opposition of the insiders to restructuring is accounted for. After the reforms of the so-called Passive Labor Market Policies (PLMPs) at the beginning of 1992, there was a slowing down of the transition and this is has not been yet completely explained by the Optimal Speed of Transition (OST) literature.