An Empirical Analysis of Welfare Dependence in the Czech Republic

The scope of this paper is to empirically test whether the potential disincentive effects of the Czech social security system affected the labor flows from unemployment to employment over the period 1995-2005. Combining individual data from the Czech Labor Force Survey and the Czech Household Income Survey, the analysis exploits the difference between the available social benefits and the net household income when a person is employed. Estimates imply that individuals who receive relatively higher social benefits are also more likely to remain unemployed and it is shown that the groups most affected are those with low education and long spells of unemployment. The paper confirms that the level and persistence of unemployment in the Czech Republic after 2000 can be partly attributed to the nationwide level of social support that constitutes a welfare trap for some individuals.