The Czech Republic (CR) is the only country in Central and Eastern Europe to have gone through the radical transformation phase without experiencing mass unemployment. In the light of the usual problems observed during the transition to a market economy, it is not an exaggeration to speak of a `Czech unemployment miracle'. Most attempts to explain low Czech unemployment are related to economic conditions at the outset of the transformation.

In Discussion paper No 1302 Tito Boeri and Research Fellow Michael Burda analyse the hypothesis that active labour market policies (ALMPs) played a role in maintaining low unemployment and increasing the turnover of the unemployment pool in the Czech Republic. The dramatic turnaround in Czech labour performance coincided with a radical shift of resources and policy focus from passive to active labour market policies. The unemployment insurance system was significantly tightened, while active programmes, such as subsidies for private sector employment as well as public work schemes, were implemented on a large scale. The focus on aggregate outcomes of policies – rather than on their impact on individual unemployment duration – leads to estimate econometrically the effects of active labour market policies on total outflows from the unemployment register to jobs. This is done against a quarterly panel data set of Czech district labour offices, controlling for local labour market conditions. The authors continue to find a small, but statistically significant effect of ALMP expenditures, job creation, and programme intakes on outflows from unemployment into employment.