The Labor Market Under Central Planning: The Case of Hungary

Abstract

Economic theory discusses how wages and employment in a given labor market are determined by exogenous variables and the behavior of the participants, enterprises and workers. For a variety of reasons, econometric tests for Western countries of the resulting theoretical propositions have often been inconclusive. In centrally planned economies, the structure of labor markets may differ from those in predominantly market economies, and a third class of participants, the planners, will enter into the deter- mination of wages and employment. In this paper, we suggest a simple structural model of the labor market in Hungary during the postwar period and fit time series data for individual industries to this model.