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February, 2014

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Labour Supply in a High Unemployment Economy: The Determinants of Engaging in Job Searching

Labour Supply in a High Unemployment Economy: The Determinants of Engaging in Job SearchingA further analysis to establish whether Nd and ILO-U are also behaviourally a homogenous group is to examine differences in their transition probabilities from one labour market state to another over succeeding time periods. Due to the lack of data (our data is cross-sectional and the respondents are not asked regarding their previous labour market experience), we cannot investigate this research question. Note that unlike Nd, ILO-U are engaged in job search and therefore show a stronger attachment to the labour market. Given our findings above that Nd in Kosova are in many respects similar to ILO-U, then with our cross sectional data we investigate what determines an individual’s decision to engage in job search. This provides an indication as to the behavioural similarities between these two groups of individuals. The model that we estimate is a probit model where the dependent variable equals 1 if the person is ILO-U and 0 if Nd. The sample consists of ILO-U (1,309 observations) and Nd (303 observations). Our choice of explanatory variables is guided by the theory of job search behaviour analysed in the previous sections and broadly correspond to those found in other similar studies. The variables are those that we have defined in our estimation of the determinants of labour force participation. Findings are presented in Table 5 separately for males and females.

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Labour Supply in a High Unemployment Economy: Discouraged Workers

We now investigate the presence of discouragement amongst the inactive population in Kosova and the implications for its labour supply. From the sample of 4,460 working age individuals, 29 percent are unemployed on the basis of ILO definition and 39 percent are inactive (Table 3). Examining the reasons for not searching (given in Table A4), we find that 18 percent of inactive persons have answered “ because I cannot find a job” which may indicate that they are discouraged workers. They constitute 23 percent of the ILO defined unemployed and 11 percent of the ILO defined labour force in Kosova. This is higher than in many OECD countries (OECD, 1995; Jones and Riddell, 1999), and supports our argument above that in high unemployment economies the discouragement effect among the non-employed individuals is more pronounced. If they are included among the unemployed, then unemployment increases from 48 percent (ILO definition) to 53 percent (broad definition) and the inactivity rate decreases from 39 to 32 percent.

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Labour Supply in a High Unemployment Economy: The Appropriateness of ILO Guidelines

Labour Supply in a High Unemployment Economy: The Appropriateness of ILO GuidelinesAlthough in the estimations above we assumed that hd>0 (the desired hours of work are greater than zero) for the unemployed, a significant number of working age population are inactive. Included among them are persons not searching because they do not expect to find jobs (usually referred to as the discouraged workers), although they would like to work if jobs were available. Assuming that engaging in job search by the non-employed workers is endogenous to labour market conditions, we expect that in high unemployment economies the discouragement effect may be more pronounced.
In our analysis above, using the Riinvest HLFS data, we utilised the ILO guidelines of active job search criteria to divide the non-employed individuals into the unemployed and inactive (as shown in Figure A1). In this section, we assess the appropriateness of this approach in cases when unemployment is high. We run some statistical tests to consider if the discouraged workers are different from the rest of the inactive population and discuss the implications for the labour supply in Kosova if they are included in the active labour force. Finally, we investigate the determinants of engaging in job search.

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Labour Supply in a High Unemployment Economy: Regional Dummies

Findings on the regional dummies for males do not support our argument of higher participation of residents from the region of Prishtina. The coefficients on regional dummies for males are individually insignificant (based on the t-test) and also jointly insignificant (X2=9.60, p=0.1428). For females, 4 out of 6 coefficients on regional dummies are significant and positive (based on the t-test), while the 6 of them are jointly significant (X2 =27.90, p=0.001). In two of these cases (Peja and Gjakova that are among the western and southern regions) findings support our expectations of higher participation due to working in predominantly agricultural regions. Given that our sample is representative at the regional level, we have estimated the same regressions with regional employment-to-population ratios substituting for the regional dummies to capture the discouragement effect due to a more depressed labour market. The estimated coefficient was insignificant for both genders. Other coefficients did not change their significance level and hardly changed their size. This is an expected finding given the current regional boundaries encompass small distances and males can easily commute to take advantage of better employment chances or higher wages. While for females, there is some evidence that they are less likely to commute and their labour supply decisions are made within the regional context.

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