[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/euf/ecopap/0134.html
   My bibliography  Save this paper

Some unpleasant arithmetics of regional unemployment in the EU. Are there any lessons for EMU?

Author

Listed:
  • Lucio R. Pench
  • Paolo Sestito
  • Elisabetta Frontini
Abstract
Several studies have documented the weak response of regional wage differentials and labour mobility following region-specific ("idiosyncratic") shocks in the average of the EU countries. This has been often taken as evidence of the rigidity of labour markets in European countries, as opposed to the flexibility of the USA. However, as such shocks by definition average to zero, one cannot make an explicit link between the (lack of) adjustment at regional level and aggregate unemployment. Moreover, the emphasis on the reaction to short-run idiosyncratic shocks is unlikely to explain the permanent differentials across regions, which characterise the regional distribution of unemployment in many EU countries. This paper tries to provide a better understanding of the regional distribution of unemployment and why region-specific shocks can matter for aggregate unemployment. It does so by explicitly considering the possibility of asymmetric reactions, so that unemployment rises more in poorer areas suffering an adverse shock than it declines in richer regions experiencing a favourable shock. The reason behind such asymmetries is the presence of a wage floor in the poorer regions resulting from policy centralisation, as for instance in the case of a national unemployment compensation system, which provides benefits that are uniform across regions. If such a mechanism is at work, aggregate unemployment tends to be “inflated” by region-specific shocks that are inequality- increasing. After presenting an illustrative model of the mechanism, the paper proposes a simple measure of the resulting “excess unemployment”, based on the difference between the average (national) unemployment rate and the unemployment rate of the median region. It also examines the relationship between regional asymmetries in unemployment and the dispersion of productivity across regions, taken as proxy of the inequality-increasing shocks. The evidence, while not entirely conclusive, justifies two tentative policy conclusions, which are particularly relevant in the context of EMU: a) to avoid centralisation of labour market institutions at the EU level that may end up inflating aggregate unemployment; b) to effectively deploy regional policies to combat inequality- increasing shocks.

Suggested Citation

  • Lucio R. Pench & Paolo Sestito & Elisabetta Frontini, 1999. "Some unpleasant arithmetics of regional unemployment in the EU. Are there any lessons for EMU?," European Economy - Economic Papers 2008 - 2015 134, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecopap:0134
    as

    Download full text from publisher

    File URL: https://ec.europa.eu/economy_finance/publications/pages/publication11179_en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Calmfors, Lars, 1998. "Unemployment, Labour-Market Reform and Monetary Union," Seminar Papers 639, Stockholm University, Institute for International Economic Studies.
    2. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
    3. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    4. Jimeno, Juan F. & Bentolila, Samuel, 1998. "Regional unemployment persistence (Spain, 1976-1994)," Labour Economics, Elsevier, vol. 5(1), pages 25-51, March.
    5. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    6. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1998. "Asymmetries in Housing and Financial Market Institutions and EMU," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(3), pages 54-80, Autumn.
    7. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    8. Paolo Mauro & Antonio Spilimbergo, 1999. "How Do the Skilled and the Unskilled Respond to Regional Shocks?: The Case of Spain," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 1-1.
    9. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2000. "Regional Disparities and the Italian NAIRU," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 146-177, January.
    10. Archibald, G C, 1969. "The Phillips Curve and the Distribution of Unemployment," American Economic Review, American Economic Association, vol. 59(2), pages 124-134, May.
    11. repec:bla:scandj:v:92:y:1990:i:2:p:215-35 is not listed on IDEAS
    12. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 11(1), pages 40-62, Spring.
    13. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    14. Lars Calmfors, 1998. "Unemployment, Labour-market Reform and Monetary Union," CESifo Working Paper Series 173, CESifo.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roberto Bande Ramudo & Melchor Fernández Fernández & Víctor Montuenga Gómez, 2011. "Wage flexibility and local labour markets: homogeneity of the wage curve in Spain," Documentos de trabajo - Analise Economica 0044, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
    2. Paolo Buonanno, 2006. "Crime and Labour Market Opportunities in Italy (1993–2002)," LABOUR, CEIS, vol. 20(4), pages 601-624, December.
    3. Sarantis LOLOS & Evangelia PAPAPETROU, 2012. "Unemployment disparities and persistence Assessing the evidence from Greek regions, 1981-2008," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 12(1), pages 69-90.
    4. Padoa Schioppa, Fiorella Kostoris & Basile, Roberto, 2002. "Unemployment Dynamics of the 'Mezzogiornos of Europe': Lessons for the Mezzogiorno of Italy," CEPR Discussion Papers 3594, C.E.P.R. Discussion Papers.
    5. Peter Huber, 2009. "Regional Labour Market Disparities in an Enlarged European Union," Palgrave Macmillan Books, in: Paul Blokker & Bruno Dallago (ed.), Regional Diversity and Local Development in the New Member States, chapter 5, pages 122-165, Palgrave Macmillan.
    6. Jozef Konings & Luca Marcolin, 2014. "Do wages reflect labor productivity? The case of Belgian regions," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-21, December.
    7. Lisanne Groen, 2019. "Explaining European Union effectiveness (goal achievement) in the Convention on Biological Diversity: the importance of diplomatic engagement," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 19(1), pages 69-87, February.
    8. Michele Limosani, 2004. "Beyond Regional Institutions: Widening Unemployment Differentials in Italy," LABOUR, CEIS, vol. 18(3), pages 503-514, September.
    9. Floro Ernesto Caroleo & Gianluigi Coppola, 2005. "The Impact of the Institutions on Regional Unemployment Disparities," CELPE Discussion Papers 98, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    10. Floro Ernesto Caroleo & Gianluigi Coppola, 2006. "Le cause dei divari regionali della disoccupazione in Europa," RIVISTA DI ECONOMIA E STATISTICA DEL TERRITORIO, FrancoAngeli Editore, vol. 2006(1).
    11. Terrell, Katherine & Jurajda, Štěpán, 2007. "Regional Unemployment and Human Capital in Transition Economies," CEPR Discussion Papers 6569, C.E.P.R. Discussion Papers.
    12. Cristiano Perugini & Marcello Signorelli, 2007. "Labour Market Performance Differentials and Dynamics in EU-15 Countries and Regions," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(2), pages 209-262, September.
    13. Michael Rusinek & Ilan Tojerow, 2014. "The Regional Dimension of Collective Wage Bargaining: The Case of Belgium," Regional Studies, Taylor & Francis Journals, vol. 48(2), pages 301-317, February.
    14. Marelli, Enrico, 1999. "Convergence and asymmetries in the employment dynamics of the European regions," ERSA conference papers ersa99pa120, European Regional Science Association.
    15. Floro Ernesto Caroleo & Gianluigi Coppola, 2006. "The Impact of the Institutions on Regional Unemployment Disparities in Europe," Discussion Papers 4_2006, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    16. Athanasios Vamvakidis, 2009. "Regional Wage Differentiation and Wage Bargaining Systems in the European Union," Financial Theory and Practice, Institute of Public Finance, vol. 33(1), pages 73-87.
    17. Mr. Athanasios Vamvakidis, 2008. "Regional Wage Differentiation and Wage Bargaining Systems in the EU," IMF Working Papers 2008/043, International Monetary Fund.
    18. Roberto Bande & Melchor Fernandez & Victor Montuenga, 2007. "Regional Disparities in the Unemployment Rate: The Role of the Wage-setting Mechanism in Spain, 1987-92," Regional Studies, Taylor & Francis Journals, vol. 41(2), pages 235-251.
    19. Roberto Basile & Luca De Benedictis, 2008. "Regional unemployment and productivity in Europe," Papers in Regional Science, Wiley Blackwell, vol. 87(2), pages 173-192, June.
    20. Adalgiso Amendola & Floro Ernesto Caroleo & Gianluigi Coppola, 2003. "Regional differences in the European labour market," ERSA conference papers ersa03p200, European Regional Science Association.
    21. Roberto Basile & Luca De Benedictis, 2004. "Regional Unemployment and Productivity in Europe and the US," ERSA conference papers ersa04p38, European Regional Science Association.
    22. Luminita VOCHITA & George CIOBANU & Andreea CIOBANU, 2008. "Implications of wage bargaining systems on regional differentiation in the European Union," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 2(36), pages 862-873, may.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Floro Ernesto Caroleo, 2000. "Le politiche per l'occupazione in Europa: una tassonomia istituzionale," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2000(71).
    2. Sarantis LOLOS & Evangelia PAPAPETROU, 2012. "Unemployment disparities and persistence Assessing the evidence from Greek regions, 1981-2008," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 12(1), pages 69-90.
    3. Michelle Gilmartin & David Learmouth & J Kim Swales & Peter McGregor & Karen Turner, 2013. "Regional Policy Spillovers: The National Impact of Demand-Side Policy in an Interregional Model of the UK Economy," Environment and Planning A, , vol. 45(4), pages 814-834, April.
    4. Galiani, Sebastian & Lamarche, Carlos & Porto, Alberto & Sosa-Escudero, Walter, 2005. "Persistence and regional disparities in unemployment (Argentina 1980-1997)," Regional Science and Urban Economics, Elsevier, vol. 35(4), pages 375-394, July.
    5. Inmaculada Garcia-Mainar & Victor Montuenga-Gomez, 2003. "The Spanish Wage Curve: 1994-1996," Regional Studies, Taylor & Francis Journals, vol. 37(9), pages 929-945.
    6. Matteo Lanzafame, 2010. "The nature of regional unemployment in Italy," Empirical Economics, Springer, vol. 39(3), pages 877-895, December.
    7. Harald Badinger & Thomas Url, 2002. "Determinants of regional unemployment: some evidence from Austria," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 977-988.
    8. Alpay Filiztekin, 2009. "Regional unemployment in Turkey," Papers in Regional Science, Wiley Blackwell, vol. 88(4), pages 863-878, November.
    9. Jens Suedekum, 2005. "Increasing returns and spatial unemployment disparities," Papers in Regional Science, Wiley Blackwell, vol. 84(2), pages 159-181, June.
    10. repec:rre:publsh:v:34:y:2004:i:2:p:156-71 is not listed on IDEAS
    11. David G. Blanchflower & Andrew J. Oswald, 2013. "Does High Home-Ownership Impair the Labor Market?," NBER Working Papers 19079, National Bureau of Economic Research, Inc.
    12. Wyplosz, Charles, 1999. "Towards A More Perfect EMU," CEPR Discussion Papers 2252, C.E.P.R. Discussion Papers.
    13. Hector Sala & Pedro Trivín, 2014. "Labour market dynamics in Spanish regions: evaluating asymmetries in troublesome times," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 197-221, August.
    14. Moller, Joachim, 2001. "Regional Adjustment Dynamics," Discussion Paper Series 26180, Hamburg Institute of International Economics.
    15. Sergei Guriev & Biagio Speciale & Michele Tuccio, 2019. "How do Regulated and Unregulated Labor Markets Respond to Shocks? Evidence from Immigrants During the Great Recession," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 37-76.
    16. Ramírez Carrera, Dionisio & Rodríguez, Gabriel, 2009. "Have European Unemployment Rates Converged?," Working Papers 2009-007, Banco Central de Reserva del Perú.
    17. Roberto Bande & Marika Karanassou, 2014. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," Regional Studies, Taylor & Francis Journals, vol. 48(11), pages 1863-1883, November.
    18. Roberto Bande & Marika Karanassou, 2011. "The NRU and the Evolution of Regional Disparities in Spanish Unemployment," Working Papers 681, Queen Mary University of London, School of Economics and Finance.
    19. K. Dimitrova & Nikolay Nenovsky, 2002. "Dual Inflation under the Currency Board. The challenges of Bulgarian EU accession," Post-Print halshs-00259861, HAL.
    20. Eichhorst, Werner & Feil, Michael & Braun, Christoph, 2008. "What Have We Learned? Assessing Labor Market Institutions and Indicators," IZA Discussion Papers 3470, Institute of Labor Economics (IZA).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0134. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECFIN INFO (email available below). General contact details of provider: https://edirc.repec.org/data/dg2ecbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.