Abstract

In this paper, we investigate the effects of human capital and factor market imperfections on household
decisions regarding labor use and reallocation in transition countries. We develop a model that
accounts explicitly for heterogeneity in the supply of labor and analyze its impact on the allocation of
labor. Furthermore, the effects of imperfections in the capital and labor markets on the reallocation
process are modeled. Using a dataset based on a countrywide representative survey of Hungarian
rural households, we estimate the effects empirically and find them to be important.