The effect of welfare provisions on female labour supply in Central and Eastern Europe

Abstract

Former socialist countries in Central and Eastern Europe encouraged women to work full time and provided various in-kind and cash transfers to mothers. Female labour supply was high under socialism but decreased sharply during the transition to a market economy. It is unclear how much of this decrease can be explained by the structural changes in the labour market, and how much is due to the withdrawal of family benefits and services. The empirical analysis of eight new member states of the European Union suggests that labour market conditions, rather than welfare policies, explain most of the decline in female participation during the transition.

Acknowledgements

I am grateful for the generous help and useful suggestions I received from Dóra Benedek, Zsuzsa Blaskó, János Köllo, Barry Reilly, and Anita Szabó on earlier versions of this paper. All remaining errors are mine.

Notes

1. The eight new members include the Baltic states (Estonia, Latvia and Lithuania), the Visegrad countries (the Czech Republic, Hungary, Poland, the Slovak Republic) and Slovenia.

2. The drop in the female participation rate (age 15–64) from 1990 to 1993 varied between 2 per cent (in Hungary) and 8 per cent (in the Czech Republic) (Nesporova 2002; Eurostat on-line database). Eurostat is the statistical authority of the European Union, established to collect and publish comparable data from the national statistical offices of member states. These may include survey data (e.g. participation rates are based on national labour force surveys) as well as government statistics (e.g. government expenditure on child and family benefits). The on-line database is available at http://epp.eurostat.ec.europa.eu, along with detailed documentation of the data. Data are organized by theme and sub-theme and can be downloaded in multidimensional tables defined by the user. I used data from the Population and social conditions theme, the Labour market and Living conditions and welfare sub-themes. Most data are annual and at the time of writing were available for the years between 1990 (or later for new member states) and 2003.

3. Some data presented in the descriptive section are available for even fewer countries.

4. This is explained by the traditional division of labour in the family, in which women choose between market work, home production and leisure, while men choose between market work and leisure (Mincer 1962). As women have closer substitutes for time spent in market work than men do, changes in market wages are expected to have larger substitution effects on women's labour supply.

5. Childcare and day care are used interchangeably throughout this paper. These are meant to include nurseries (for children aged under three) and kindergartens (educationally oriented care for children over two).

6. Adam (1984: 71) and Gábor and Galasi (1985: 33) argue that setting low wages was at times used as an incentive to increase household labour supply, as it required a second wage earner to maintain a reasonable level of per capita household income.

7. Two old member states (Luxembourg and Belgium) are excluded for the lack of some variables and two new member states (Malta and Cyprus) are excluded on account of both their different past and missing data. The author will be pleased to supply all data and details of the estimations on request.

8. See notes 2 and 3.

9. Pooled cross-section data are likely to be plagued by heteroscedasticity and autocorrelated errors, which may introduce bias into the OLS estimates. However, Beck and Katz (1995) show that OLS methods still perform relatively well in practice.

10. The effect of cash transfers in CEE is the sum of the coefficient of cash transfers and of the coefficient of cash transfers in CEE. The same applies to daycare and other in-kind transfers in CEE. Percentage point increases are calculated at the mean. E.g. a practicable increase of 0.1 per cent in cash benefits reduces female participation by (0.003 + 0.006)∗92.2 = 0.8 percentage points, where 92.2 is the average male participation rate in the CEE.

Additional information

Notes on contributors

Ágota Scharle

Ágota Scharle is Head of the Economic research unit of the Hungarian Finance Ministry, and also a member of the EC FP6 Network of Excellence “Reconciling Work and Welfare in Europe”. Her research mostly concerns the empirical analysis of welfare programmes and their impact on individual labour supply decisions.