Labor force participation in Eastern European countries: nonlinear modeling

Abstract

Purpose The purpose of this paper is to investigate the behavior peculiarities of the labor force participation in Eastern European countries. Design/methodology/approach The authors provide the analysis of nonlinearity in dynamics of economic active population and perform the econometric analysis using logistic smooth transition autoregressive models that are flexible and capture various kinds of behavior for different modes. The paper investigates labor markets of six Eastern European countries, Hungary, Bulgaria, Poland, Slovakia, Romania and Croatia that are characterized by lower level of labor force participation rate (LFPR) than average level in EU. Findings The results of modeling quantitatively characterize smooth changes in the behavior modes of labor force activity for each country and indicate how population economic activity depends on previous labor market states. The estimated slope parameters that determine the smoothness of transition between regimes show that, in all countries, the labor force participation quite quickly reacts to changes that occurred on the labor market in the past. During recession periods, households of European countries that joint EU last decade in order to prevent the depletion of their total income increased labor supply and showed increased activity in job search. Originality/value This paper indicates the nonlinearity and asymmetry in LFPR in transition economies, discovers variety of its dynamics in the different regimes and determines the indicators that cause the change of the population economic activity behavior in each country.