Multiple Equilibria in Labour Market: The Case of the Czech Republic

摘要

The unemployment rate in the Czech Republic has been switching between a lower and a higher level in past two decades. This empirical observation gives rise to a question whether or not this dynamics could be modelled as transitions from a lower to a higher equilibrium. A nonlinear model of the Czech labour market is formulated in this paper in order to answer this question. The formulated model will be econometrically estimated. It turns out that the estimated model induces multiplicity of equilibrium unemployment rate under economically plausible assumptions. Factors influencing the position of the equilibrium points are studied and multiplicity of equilibria is interpreted from an economic point of view as well. The basic idea is that there is low demand for labour in times of high unemployment. Therefore, it is hard to find a job, which sustains unemployment at high levels, which gives rise to a higher less effective equilibrium.