Evaluating labour market flexibility in V4 countries

This contribution focuses on evaluation of labour market flexibility in the V4 countries. These countries have similar historical destiny but the economic transition led to new labour market institutions. Labour market outcomes are thus quite different in the last decades. Using a small closed DSGE model with search and matching frictions, the main structural labour market differences among these countries are revealed. These differences are related to the changes in separation rates, matching efficiency, match elasticity of unemployed and the bargaining power of the workers. The models are identified using Bayesian techniques. Comparing the moments of simulated data, we can conclude that the estimated models are able to replicate the main statistical properties of the observed data. The labour market in Hungary seems to be the most flexible regarding the labour market dynamics in the light of the nascent economic recovery. On the other hand, all examined economies are similar to the extent of the low wage bargaining power of the workers.