J68 - Mobility, Unemployment, and Vacancies: Public PolicyReturn

Unemployment is undoubtedly phenomenon with serious social-economic impact on individuals and society as a whole. It is however also affecting public budgets lowering their incomes and increasing their costs. In accordance to recent economic crisis and continuous indebting of state budgets unemployment has become an interesting issue from the public deficit point of view. This paper estimates public budgets costs of unemployment in the Czech Republic in 2009. However the proposed methodology is generally applicable. We calculate not only direct cost which consist of tax reduction and unemployment benefits but also indirect cost resulting from decreased consumption (and production) of newly unemployed individual. Our method is based on construction of median unemployed, who represents a typical unemployed with median wage, age, education and length of unemployment. Indirect effects of unemployment are calculated with modified Okun's law estimate.

In this paper we explore how unemployment benefits and other social benefits affect work incentives in the Czech Republic. We test the link between replacement rates and reservation wages taking duration of unemployment into account and we specify validity of the outlined model using replacement rates and reservation wages recognised in the sample of the unemployed. We conclude that replacement rates are high only in case of specific family types (incomplete families and families with children where women have lost the job), low skilled categories of the unemployed. Reservation wages are linked mainly to the economic and social status of the unemployed and seem to be raised by replacement rates of benefits only with the category of the unskilled. Besides low efficiency of job search, insecurity of job tenure and insecurity of future benefits entitlements raise the price of the status of the unemployed and push reservation wages up.