Labor Supply after Transition: Evidence from the Czech Republic

We extend the scarce evidence on the labor supply in post-transition countries by estimating the wage elasticity of labor force participation in the Czech Republic. Using household income survey data, we find that a one-percent rise in the gross wage increases the probability of working by 0.16 and 0.02 percentage points for women and men, respectively. Taking into account the tax and benefit system, these semi-elasticities fall to 0.06 for women and 0.01 for men. We interpret the difference between the estimates from the two specifications as a summary measure of the welfare system disincentives. The estimated wage elasticities lie at the lower end of the range of values reported for mature market economies. This finding is consistent with the stylized fact that the labor supply in countries with high labor force participation rates, such as the Czech Republic, tends to be less sensitive to wages.