newly collected 1991-2005 _district-level monthly panel data_ on the unemployed _U_ , vacancies _V_ , inflow _S_ into unemployment (reflecting labor turnover in firms), and outflow _O_ from unemployment in five former communist economies (the Czech Republic, Hungary, Poland, Slovakia, and eastern part of Germany – hereafter “East Germany”) and in the western part of Germany (a benchmark western economy – hereafter “West Germany”) to examine the three hypotheses in the context of labor market turnover and the efficiency of matching of the unemployed and vacancies.<sup>2</sup> The comparison of the transition economies with an otherwise similar and spatially close market economy is useful because it enables us to identify the main differences and similarities in the evolution of the key variables and thus draw conclusions as to whether different or similar factors are at work. From an analytical standpoint we are also comparing an interesting set of transition economies. East Germany, Czech Republic and Slovakia were until the end of communism close adherents to the centrally planned, state-ownership system, with East Germany subsequently abruptly merging with a mature market economy (our benchmark) and its functioning institutions and the Czech and Slovak republics pursuing an independent path developing market institutions steadily from scratch. In contrast, communist Hungary and (to a lesser extent) Poland had already introduced some market oriented reforms and Poland had a non-negligible private sector (especially in agriculture) throughout the communist era.

> 2 These countries constitute an appropriate set of economies in which to examine these issues. In the Czech Republic, the unemployment rate remained at mere 3-4 percent throughout the (transformation) recession of first half of the 1990s and only rose to 6-9 percent during the second recession of 1997-99. In the 2000s, the unemployment rate remained in the very high 14-20 percent range in the rapidly growing economy of Slovakia (as well as Poland), and stabilized in the high 7-10 percent range in the moderately growing Czech Republic and Hungary. In Western and Eastern Germany, which we examine as comparison economies, the unemployment rate has since the early 1990s fluctuated around 10 percent and 15 percent, respectively. An important part of the answer to the above questions is that from the time unemployment started appearing in CEE in the early 1990s, the Czech Republic has had extraordinary low inflow rate and higher outflow rate of individuals from the unemployment state to employment than did the other CEE economies (see e.g., Boeri, 1994, Boeri and Scarpetta, 1995 and Ham, Svejnar and Terrell (HST), 1998, 1999). For instance, in 1993 inflow rates were 0.7 in the Czech Republic but 1.5 in Slovakia, 1.9 in East Germany, and 1.13 in Poland (see table 1). Similarly, in 1993 the outflow rate in the Czech Republic was 21.0, 8.1 in Slovakia, 4.9 in Poland, and 4.3 in Hungary (from HTS). Moreover, possible causes of the less rapid rise of unemployment in the Czech Republic in the early 1990s, such as lower inflow rates into unemployment due to higher government subsidies to Czech firms or to greater declines in Czech labor force participation, are not borne out by the data. These basic findings suggest that one needs a better understanding of the determinants of outflow from unemployment and matching of the unemployed and vacancies in the Czech Republic and the other CEE

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