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January, 2014

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Labour Supply in a High Unemployment Economy: Findings

Labour Supply in a High Unemployment Economy: FindingsIn this section, we discuss our findings from estimating Equation. Given the observed large gender differences in the labour market and our prior expectations regarding different effects of explanatory variables on labour supply of males and females explained above, we estimate separate regressions by gender. Findings are presented in Table 2. The estimated coefficients on age and its squared value have the expected signs and are significant for males and females, giving the normal concave shape of the LFP curves with respect to age. We have insufficient evidence to reject the null hypothesis of similar shapes of the LFP curves with respect to age for urban and rural residents.
In line with the evidence elsewhere, the estimated coefficients on educational dummies have the expected positive signs and are significant. The significant and positive coefficients on the interactive dummies between residence and education (for both genders) support our expectations of a greater role for education on the labour supply of urban residents compared to their rural counterparts. Our estimate indicates that being married lowers the likelihood of supplying labour to the market for females ceteris paribus, but no significant difference is found between urban and rural females. The estimated additional affect on marital status for urban males is positive and significantly different from the rural rate. For urban areas this provides some support for our expectations of an increased labour supply of married males to provide additional incomes for the extended family, which is also in line with the findings elsewhere.

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Labour Supply in a High Unemployment Economy: Estimation Strategy

Variables related to household characteristics bring this perspective into the decision to supply labour to the market. The dummy on having a household member abroad is expected to test for the effect of remittances on labour supply decisions of non-migrant household members. Based on the neoclassical model of labour-leisure choice, remittances shift the budget line upwards and assuming that leisure is normal good then they reduce the labour supply of non-migrant household members (i.e. an income effect). However, in transition and developing countries characterised by an underdeveloped credit market, remittances are thought to be an important source of financing entrepreneurial projects. In line with this, some studies find that remittances increase the propensity of some non-migrant household members (males in particular) to engage in self-employment.

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Labour Supply in a High Unemployment Economy: Data

Labour Supply in a High Unemployment Economy: DataIn this section, we briefly discuss the Riinvest HLFS data and explain our estimation strategy. The Riinvest HLFS was conducted in December 2002. The unit of observation was the household and the sample was representative of urban and rural areas and the 7 main regions of Kosova. The sample consisted of 1,252 households (randomly selected after sample stratifications) with 8,552 members that is 0.45 percent of the population in Kosova. The survey questionnaire included questions regarding the demographic labour market information of each household member, household’s incomes and expenditures, household members abroad, the household land etc.
Figure A1 in Appendix shows how an individual’s labour force status is determined according to this survey, which complies with international labour standards. The LFP rate estimated at 58 percent is especially low for females. Following our discussion above, although we have data from the Riinvest HLFS survey, the model presented by Equation for the hours of work seems inappropriate in our case as only 30 percent of the sample of working age individuals in Kosova are employed (i.e. have h>0). From the practical point of view, it seems inappropriate to consider 70 percent of the sample as described by the corner solution of h=0.

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Labour Supply in a High Unemployment Economy: Developing Economies

There is limited evidence regarding the determinants of labour supply in ETCs. Siliverstovs and Koulikov estimate a logarithmic specification of Equation for married females in Estonia and find that the wage elasticity of hours supplied per week is positive (0.53), while the non-labour income effect is insignificant. They also find a significant negative effect of the presence of small and teenage children and a significant positive effect of working experience. Mizala et al. find for Chile that education (as a proxy for the market wage) is more important for females than for males in determining hours of work per week. The presence of children inhibits the labour supply of women, while for males it has a positive effect on hours of work per week. For females, Mizala et al. find that the change in the labour supply with a change in the explanatory variables is largely reflected in the decision to participate in the labour force rather than changing hours of work supplied, while for males the change is more in terms of hours of work.

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Labour Supply in a High Unemployment Economy: Labour Supply Function

Labour Supply in a High Unemployment Economy: Labour Supply FunctionIn almost all such studies, participation is treated as synonymous with being in employment, reflecting the North American norm of low unemployment. As we argue below, equating labour supply to employment may not be appropriate in high unemployment economies. Despite advancements in the estimation procedures, there are still some conceptual problems in estimating a labour supply function. In all these approaches, it is assumed that workers are free to choose their hours of work and the observed hours of work reflect a labour supply decision. This implies that the desired/optimal hours of work (hd) that maximise the utility (given the budget constraint) are assumed to be equal to the actual hours of work (ha).
This assumption is too restrictive for the following reasons. First, even when there is a range of jobs offering different hours of work, workers are unlikely to be mobile due to their skills not being transferable across jobs. Second, information asymmetry usually characterises the labour market (say due to search costs). Third, there are demand-side restrictions regarding the choice of hours of work within jobs. Finally, particularly in high unemployment economies including Kosova, there are demand-side restrictions regarding the availability of jobs at the market wage.

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Labour Supply in a High Unemployment Economy: Theory

Conventional theory views the labour supply as determined by numerous individual and household level decisions on both participation and hours of work. The typical model used is the static neoclassical model of labour-leisure choice, which examines the effect of wage and non-labour incomes on the decision to supply labour to the market. Killingsworth and Heckman, Pencavel and Blundell and Macurdy provide a review of different approaches of modelling labour supply. This simple static neoclassical framework is often extended to include other household members into the utility function as labour supply decisions are typically made in the context of decisions taken by other household members (as explained by the income-pooling hypothesis whereby all household members share household incomes). Data limitations often cause the static model to be favoured in empirical investigation of the determinants of labour supply. Below critically assess the conventional empirical approaches used to estimate such a labour function and present some related evidence.

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Labour Supply in a High Unemployment Economy: Introduction

Labour Supply in a High Unemployment Economy: IntroductionFollowing the regime change in the European Transition Countries (ETCs), employment, output, wages and prices suddenly ceased being set by central planners and became determined by market forces. These developments brought profound changes in the economic behaviour of individuals residing in these countries. The labour force participation (LFP) rate in ETCs prior to 1989 was higher than their level of economic development would predict, which was thought to be due to central planners providing subsidised childcare that reduced the costs of employment for mothers, kept real wages low and enforced laws obliging all eligible adults to work.
Kosova was one of the last countries to embark on the road of transition to a market economy. Before 1990, it was the poorest region in the former Yugoslavia with a per capita social product of a quarter of the Yugoslav average in 1989. During 1990-1995, GDP contracted by 50 percent compared to its pre-transition level. Since emerging from the military conflict in 1999 and a decade of disinvestment, GDP is recovering and has now reached the level of around €1,000 in per capita. However, it remains the lowest of all SEE countries.
Labour market developments in Kosova following the regime change are different in many respects from those found in other transition economies. In the early 1990s, some 145,000 workers (about 60 percent of employment in 1989) were dismissed from their jobs. Kosova is known for its young population and large-scale emigration, both of which influence the size and the age composition of its domestic labour force. Nearly one-third of the population is under the age of 15, implying a large number of new entrants into the labour force each year. As a consequence of its recent history, young population and persistent high unemployment, approximately 20 percent of the population (that is half a million people) are emigrants, whose remittances are estimated at the level of 13 percent of GDP.

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An Outline of the Concept of Entrepreneur: Conclusion

An Outline of the Concept of Entrepreneur: ConclusionAdam Smith considered that the capitalists are the privileged of the economic system. They “get away” from competition, since they hold the “manufacturing secrets” and they may unite themselves in powerful coalitions, holding information to which the other social categories cannot have access. This is not possible if one promotes an efficient governing system that excludes or at least limits the entrepreneurs’ opportunist behavior, determining them to act with the purpose of meeting the requirements of all people interested in the company’s long – term profitable operation and not just in pursuit of their personal objectives or interest coalitions. Global Banking Survey

Schumpeter formulated the idea that the entrepreneurs are born, and they cannot be trained, while Peter Drucker asserted that being an entrepreneur is not a personal feature, but more behavior, and the management activity may only be successfully practiced if the manager possesses specialized knowledge.
To my opinion, the entrepreneurs must have innate capacities, but such an aspect is not enough if they are not further trained and improved by education. The good entrepreneurs start their activity with their talents that they shape further according to the successful and unsuccessful experiences. In order to be a good entrepreneur one must have what it is commonly called “managerial capacity” to which Say referred to when he used the term “entrepreneurs’ capacity” as the one that exerts the greatest influence in the management process and wealth distribution.

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An Outline of the Concept of Entrepreneur: Historical Analysis

Any institution, observes Drucker in “Post Capitalist Society”, “degenerates in mediocrity and lack of performance if it is not responsible in front of anyone for the results attained. The same thing happened with the great American corporations between 1950 and 1980”. This was the context in which during the 80s, Drucker’s attention turned to the entrepreneurial capitalism and to non – profit organizations. Drucker considers that the advent of a “real economy of the entrepreneurs in the United States within the last 10 or 15 years is the most significant event in the recent economic and social history”. Following the publishing of his book ‘Innovation and Entrepreneurship’, a reporter of Inc. magazine asked Drucker if he agreed with the “conventional wisdom”, according to which there are managers and entrepreneurs, but these represent two distinct categories. Drucker’ answer was both yes and no: “There is managerial work and entrepreneurial work, but you cannot be a successful entrepreneur if you do not use your managerial skills and if you try to be a manager without being entrepreneur, you are in the risk of becoming a bureaucrat. Industry Towards

The entrepreneur is the capitalism’s hero and Drucker wanted that part of his prestige passes over the manager who needed him too much that particular time. Strangely, Drucker himself, the one who coined the concept of manager did not feel comfortable in using the word manager: “I see that I use the term executive more often because it involves the responsibility of a certain sphere, and not necessarily authority over people“. Further, Drucker was insensitive to the entrepreneur’s charm: “The image of innovators is the one of a hybrid between Superman and The Knight of the Round Table. Most of them are not romantic characters in their normal life and they spend hours to draft a project “. There was nothing miraculous in terms of entrepreneurship – a subject matter that could be taught just as mathematics. It is not a romantic aspect, but the biographic circumstances that made the enterprising spirit understandable for Drucker, since it was inoculated by his father’s friend of and former colleague at the Faculty of Economics at Vienna University, Joseph Schumpeter.

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An Outline of the Concept of Entrepreneur: Entrepreneurial System

An Outline of the Concept of Entrepreneur: Entrepreneurial SystemThe entrepreneurs are not capitalists, although it is obvious that they need capital, as they need all the economic activities and most of non – economic ones. They are not investors either. They assume the risks, but so does also any employee in any type of activity.
The entrepreneur is not a boss as well, but he may be. He is often an employee or someone that works by himself and on his own. Thus, the entrepreneurial system is a distinctive feature either we are thinking about the individual or about an institution.
To be an entrepreneur is not a personal feature, as Peter Drucker observed, arguing that he had seen in thirty years people having the most diverse personalities and tempers with an appropriate behavior in the entrepreneurial desiderata. Still, it is less probable that the people who need certainties may be good entrepreneurs and the same thing happens with those people who want to manage in a multitude of other activities, such as politics, military service or being captain on a transatlantic ship. All such activities require decision taking for a specific purpose, and the essence of any decision is the uncertainness because anybody may cope with such a situation and anybody can learn how to be a good entrepreneur and to behave accordingly.

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