Does unearned income impact labor market activity? : analyzing the effect of remittances and social transfers on employment decisions in Bulgaria

Abstract

This paper explores the effects on employment outcomes of unearned income (i.e., remittances and social transfer payments) in Bulgaria. Since the late 1980's, Bulgaria has been transitioning from a socialist, command style economy to one based on democracy and free market principles. As a result, Bulgaria has been plagued by high and persistent unemployment rates, not dissimilar to the experience of other transition economies. In addition, Bulgaria's employment rate is well below the European Union average, which it joined in January 2007. While the lack of employment opportunities is partially responsible, the empirical evidence presented in this paper shows that unearned income does create a disincentive to work. However, the disincentive effect is not driven by social transfer payments, but remittances. In addition, it is clear that there are discriminatory practices in the labor market as evidenced by the extremely low employment rates for all age groups of the Roma population. Gender inequality is also problematic, but to a lesser extent. Government intervention in the form of legislation is necessary to overcome these obstacles.