Budapest Working Papers on the Labour Market No. BWP - 2001/1
At the eve of 1999 the Hungarian government introduced radical reforms including a further cut of UI benefits and the abolishment of UA for benefit exhausters. The reforms were based on the assumption that the generosity of unemployment benefits combined with the availability of informal jobs bear responsibility for the low level of search activity and job finding. The welfare risk implicit in the reform is particularly high in Hungary's poorest regions where 50 per cent of the working age population is out of work. The paper analyses the specifics of non-employment in these regions and speculates about the possible impact of the reform. Generally the data do not provide strong evidence supporting the approach of the reform and raise concerns over its implications for the poorest regions. The research is primarly based on discrete time duration analysis using LFS panel data from 1997-98. The data do not support the assumption that exit to job probabilities are strongly affected by benefit receipt. Informal incomes are likely to play a role in the stabilization of low employment levels in the Northern Plain (one of the two depressed macroregions) but not in the North. Generally, the 'stagnant pool' characterisation of unemployment does not hold in these regions - they are in lowemployment state combined with continuously (North) or seasonally (Northern Plain) high mobility.