The disintegrating Canadian labour market? The extent of the market then and now

Abstract.  Analysis of real wages for three occupations in 13 Canadian cities for 1901–50 suggests Canada had a national labour market at least until 1950. However, analysis of real wages for 10 Canadian cities for 1971–2000 yields little evidence favouring integration of Canada's regional labour markets. The apparent lack of labour market integration reflects a weakness of an approach that assumes markets are in equilibrium. Unemployment rates after 1970 suggest that some regional markets may be characterized by excess labour supply. Analysis of relative provincial unemployment rates yields evidence consistent with local labour force adjustment to changing labour market conditions. JEL classification: E24, J61     

Growth,unemployment and labour market institutions: evidence from a cross-section of EU regions

The responsiveness of unemployment to growth is an issue of ongoing political and academic interest. Economic growth is supposed to be the key to increase labour demand and reduce unemployment. Departing from Okun's law, most research on the unemployment intensity of growth has focused on national disparities and the role of labour market institutions. Empirical evidence at the regional level is scarce. We investigate differences in regional labour market responsiveness and their potential determinants for a cross section of European regions. The data set covers the NUTS 2 regions in the EU15 for the period 1980 to 2002. Following a spatial modelling approach interaction among neighbouring labour markets is taken into account. Our findings point to substantial differences in labour market effects of output growth among European countries and regions. Both national labour market institutions and regional characteristics, such as structural change explain a significant part of these disparities.     

Regional double dividend from environmental tax reform: An application for the Italian economy

The greenhouse effect forces national Governments to design environmental tax policies for facing not only global warming but also the negative economic consequences resulting from the reduction of emissions such as a negative change of GDP. This paper aims at verifying the impact of an environmental fiscal reform able to attain both the reduction of greenhouse gas emissions and the regional double dividend. We have decided to follow the computable general equilibrium approach for modelling the multisectoral income circular flow in the case of a bi-regional economy as described by a Social Accounting Matrix we have built for this purpose. The tools of analysis we chose represent suitable and consistent instruments in order to quantify the effects of an environmental tax reform. They can in fact highlight the possible differences in responses between macro regions in terms of regional GDP changes, regional prices and regional employment rate. In fact, the extended multi-sectoral framework, on which the model is developed, represents economic activities, imperfect labour market and institutional sectors behaviours in each macro region. The simulations performed concern the introduction of a progressive and proportional green tax on each type of commodity according to the corresponding level of CO₂ emissions. Furthermore all simulations introduce a recycling scheme of green tax revenues, whose aim is reducing both the income tax and the regional tax on activities (IRAP). The application is done on a bi-regional Social Accounting Matrix for Italy for the year 2003.     

Canadian regional labour market evolutions: a long-run restrictions SVAR analysis

Canada's high reliance on commodities can work against its constitutionally mandated goal of regional equity in economic development, while also inhibiting macroeconomic performance and limiting monetary policy effectiveness. Yet, flexible and integrated regional labour markets can help achieve both equity and macroeconomic goals. Therefore, this study examines the dynamics of Canadian provincial labour markets using a long-run restrictions structural vector autoregression (SVAR) model. Labour market fluctuations are decomposed into the parts arising from shocks to labour demand (new jobs), labour supply through migration (new people) and internal labour supply (original residents). The results suggest that demand innovations primarily underlie provincial labour market fluctuations. Despite significant geographic and language barriers that could impede their performance, there also is little overall evidence to suggest that provincial labour markets are more sluggish or less flexible than US state labour markets. Finally, original residents benefit slightly more from increased provincial labour demand compared to findings for US states.     

Are wages equal across sectors of production?

The assumption that national labour markets are homogeneous across tradable and non‐tradable goods is common in multisector (open‐economy) macro models and crucial for the prominent Balassa–Samuelson hypothesis. To test it, this study introduces a novel, theory‐based method of distinguishing the tradable and non‐tradable sectors to the Balassa–Samuelson literature and employs modern empirical methods and a large and detailed macro dataset. It finds that both the internal relationship between productivity and wages in the tradable and non‐tradable sectors postulated by the Balassa–Samuelson hypothesis and its external transmission mechanism are rejected.     

AGGREGATE EMPLOYMENT DYNAMICS AND (PARTIAL) LABOUR MARKET REFORMS

European labour markets have undergone several important innovations over the last three decades. Most countries have reformed their labour markets since the mid‐1990s, with the liberalization of fixed‐term contracts and temporary work agencies being the common elements to such reforms. This paper investigates the existence of a change in the dynamic behaviour of the aggregate employment for major European Union countries – France, Germany, Italy and Spain. According to our results, partial labour market reforms have made the response of the aggregate employment to output shocks larger and quite comparable to that found for the UK – the most flexible labour market in Europe since the Thatcher reforms.     

Regional unemployment and its persistence in transition countries1

We look at the differences in regional unemployment rates in six major transition countries and their persistence over time. We analyse the role various adjustment mechanisms play. While movement out of the labour force seems to be one consequence in many regions with high relative unemployment, there are also signs of emerging wage flexibility. Employment creation, by contrast, has not picked up in regions of high unemployment. Labour mobility also remains very limited in size although it appears to respond to basic economic incentives. Policies addressing housing market imperfections and information asymmetries are necessary to increase worker mobility and to integrate better national labour markets.     

Ageing shocks and short-run regional labour market dynamics in a spatial panel VAR approach

Using a flexible spatial panel VAR model for a small-scale labour market system, we investigate the dynamic interdependences between changes in the demographic structure and the labour market performance of a regional economy. With a particular focus on ageing shocks, we describe an increase in the share of elderly in regional population due to exogenous changes in the institutional context, such as pension reforms. The regional labour market implications of an ageing shock are then tested with regard to the effects on employment growth, unemployment and labour participation rate. Our results based on a sample of 71 Scandinavian regions point to negative regional labour market effects of an ageing shock implying a reduction in employment growth and a temporarily declining labour participation rate, while the unemployment rate increases. Importantly, spatial spillovers amplify these negative impacts through a marginalization of macro-regional labour markets. As a robustness check, we reverse the causal ordering and analyze the responses to a positive macroeconomic shock which initially increases employment growth. We find direct and spatially indirect adjustment patterns characterized by a reduction of the unemployment rate, an increase in the labour participation rate and a decrease in the share of elderly in the population.     

Collective bargaining and regional wage differences in Spain: an empirical analysis

This article analyses the importance of labour market institutions and, in particular, collective wage bargaining in shaping regional wage differences in the Spanish labour market. Using microdata from the Spanish Structure of Earnings Survey, our results reveal that there are significant inter-regional wage differences for similarly skilled workers. These differences are present throughout the whole wage structure and can be explained by both competitive and non-competitive factors, such as insufficient competition in product markets. In this context, industry-level collective bargaining plays a major role in accounting for regional wage differences, a role that in the Spanish case is enhanced due to its unusual regional dimension.     

Non‐wage benefits,costs of turnover and labour attachment

Like firms in established market economies, many Russian firms provide non‐wage benefits to their workers, such as housing, medical care or day care. This article explains the provision of benefits as a strategic choice for firms in the presence of labour and service market imperfections. Analysing unique survey data for 404 industrial establishments from 40 Russian regions, the authors provide strong evidence that non‐wage benefits are used by firms to attach workers and thereby reduce the costs of labour turnover in the face of tight labour markets. It is also shown that this attachment strategy works due to imperfections in the regional markets for social services.     

Evaluating innovation and labour market relationships: the case of Italy

In this paper the link between labour market flexibility andinnovation is analysed paying particular attention to the differenttechnological regimes of economic activities and the differentgeographical areas of the Italian economy. A dynamic panel dataspecification is used to assess the endogenous relationshipbetween patents, included as a proxy for innovation, and jobturnover and wages, which represent labour market indicators.Our results show that higher job turnover only has a significantand negative impact on patent activities in regional sectorsof Northern Italy, while blue and white collar wages have beengenerally found to have a positive and significant impact oninnovation.     

'Young In,Old Out' Revisited: New Patterns of Employment Replacement in the Italian Economy

This paper, based largely on data from the Italian social security (INPS) records, shows that recent employment trends in Italy have been marked by large job and worker turnover and a new and strong process of renewal and substitution of labour in industry. Entries of young workers have shown a remarkable increase, mainly through the application of work and training contracts ('contratti di formazione e lavoro') that provide firms with a means to cut labour costs. Meanwhile many workers in their 40s with considerable seniority, but still perfectly fit to go on working, found themselves squeezed out. The exit of this generation of mature workers was eased through subsidised early retirement, golden handshakes and a wide application of the 'cassa integrazione guadagni' (wage supplementation fund). This pattern of labour force replacement in industrial production, described as 'young in, old out', is at odds with the frequent ranking of Italy among the industrial countries hampered by rigid labour markets and questions theories of unemployment based on 'insider-outsider' hypotheses.     

Diverse twins: analysing China’s impact on Italian and German exports using a multilevel quantile regressions approach

Germany and Italy are the largest manufacturing producers in Europe and export over 70% of their products to OECD countries. While they share many characteristics, they are also diverse in term of specialization and destination markets. Italy has a productive structure largely based on labour intensive sectors, while Germany is mainly specialized in high-tech goods. We study whether these characteristics make the two countries vulnerable in different ways to the competitive pressure by emerging economies, especially China, which experienced the strongest increase in export market share during the last decades. We discuss the impact of China on the export performance of Italy and Germany on OECD markets. Using data for the period 1995–2009, we implement a novel model to account for two important data characteristics: their hierarchical hidden structure (captured by a multilevel model) and the heterogeneity of the export shares (captured by a quantile approach). Results show that Chinese competition on Italy’s and Germany’s market shares differ by sectors, but, on average, Italy is not more vulnerable than Germany. These results are relevant for policy implications and for an ex-post analysis of the ‘best response’ to the Chinese competition.     

Modeling regional labor markets in Germany: insights not only for German policy makers

This paper develops an econometric model for studying the structure of regional labor markets. We estimate the model for three representative Western German federal states. The simulation results of these heterogeneous states reveal substantial structural differences in the short as well as the long-run. These differences impact on labor demand and labor supply and, hence, call for investigating demand and supply of labor instead of merely the unemployment rate. The revealed commonalities and differences may help regional as well as national policy makers to formulate policies tailored at the specific needs of regional labor markets.     

Terms of trade and domestic distribution: Export-led growth with abundant labour

A general equilibrium macro model is constructed to explore effects of export-led growth policies on the terms of trade and the domestic distribution of a developing region with abundant labour. This region, the South, trades with another, the North; they have different technologies and supplies of factors. It is shown that under certain conditions of dualism in the production of goods and of abundant labour supply in the South, an increase in the volume of exports from the South may bring about a sustained worsening of the South's terms of trade with the North even if this increase in exports is due to a positive shift in demand from the North. This change in the terms of trade is accompanied by a sustained loss of purchasing power of wages within the South. These results take place in a Walrasian stable market. When technologies are more homogenous and labour less abundant, the results are reversed: increased exports will take place together with improvements in terms of trade and a tendency to equalise factor prices between the regions. The results argue for coordination of domestic and international policies with special attention to technologies and labour markets.     

Pitfalls in the modeling of labor market flows: a reappraisal

ABSTRACT

We discuss the relevance of the internationally adopted methodology for modelling labour market flows and comparing labour market flexibility. This is based on a two-state labour market model that neglects inactivity and uses aggregate stock data to derive transition rates. Traditionally, the results suggest that continental European labour markets are inflexible and unable to adjust quickly to aggregate demand or supply shocks compared with their Anglo-Saxon counterparts. This evidence has driven us to gain a better understanding of the relevance of such a modelling approach and critically discuss its main methodological hypothesis. We relax its assumptions by including inactivity and by using flow data for the period 2010–2017. We compare the results thus obtained with transition rates derived using a three-state labour market model for France, Italy, Spain and the United Kingdom. These countries represent the institutional settings of continental Europe on the one hand and Anglo-Saxon nations on the other. The implied transition rates are much higher, even in continental Europe, when inactivity is considered, thus suggesting that conclusions derived using an incomplete representation of the labour market are misleading. Inactivity therefore plays a crucial role and its inclusion provides a more exhaustive picture of labour mobility.     

Agglomeration and fair wages

Abstract.  This paper implements a fair wage constraint into an analytically tractable core-periphery agglomeration model. This enables us to study the role of imperfect labour markets for the pattern of agglomeration. In the short run, a marginal increase in fair wage preferences leads to an unambiguous compression of the national factor price differential between skilled and unskilled labour, involving an increase in the unemployment rate of unskilled workers. In the long run, this mechanism renders full dispersion of an unstable equilibrium already at higher trade costs than in perfect labour markets. There is a tendency for fair wage preferences to enforce agglomeration.     

The polarization impact of the crisis on the Eurozone labour markets: a hierarchical cluster analysis

This study assesses the impact of the Great Recession (2008–2014) on the process of integration of the Eurozone labour markets. Through an agglomerative hierarchical cluster analysis using several European labour market harmonized indicators, we find that the crisis led to a greater integration, and to a polarization within the area. In the aftermath of crisis, two groups of countries clearly emerged, consisting Austria, Belgium, Finland, France, Germany, Italy, Luxembourg and Netherlands in the core while Greece, Ireland, Portugal and Spain in the periphery.     

The East German wage structure after transition1

Abstract We extend the literature on transition economies’ wage structures by investigating the returns to tenure and experience. This study applies recent panel data and estimation approaches that control for hitherto neglected biases. We compare the life‐cycle structure of East and West German wages for fulltime employed men in the private sector. The patterns in the returns to seniority are similar for the two regional labour markets. The returns to experience lag behind in the East German labour market, even almost 20 years after unification, with significant differences particularly for high‐skill workers. The results are robust when only individuals who started their labour market career in the market economy are considered. We expect that the different returns are related to the heterogeneity of work experience gathered in East as compared with West Germany.     

Testing for fixity of the labour input under non competitive behaviour in Italian and French manufacturing

The flexibility in labour markets and the degree of competition in output markets are investigated in the context of the Italian and French manufacturing sectors. Conventional wisdom seems to point out that in countries with institutional constraints in the labour market it may not be easier to optimize over labour than over capital. We test whether labour is fixed starting with a measure of labour as total hours worked. As the hypothesis cannot be rejected, we do not proceed to test a further hypothesis, based on the measurement of labour as number of workers. We use a variable cost model supplemented with a markup pricing rule to allow for non competitive market structure. From the results it emerges that the output markets are non competitive. We derive analytically and provide a measurement of both short-run and intermediate-run markups. We also derive a measure of the long-run cost-minimizing level of labour: the ratio of optimal to actual level gives the degree of under- or over-utilization of labour.