The NAIRU reconsidered: why labour market deregulation may raise unemployment

According to the mainstream theory of equilibrium unemployment, persistent unemployment is caused mainly by ‘excessive’ labour market regulation, whereas aggregate demand, capital accumulation and technological progress have no lasting effect on unemployment. We show that the mainstream non‐accelerating inflation rate of unemployment (NAIRU) model is a special case of a general model of equilibrium unemployment, in which aggregate demand, investment and endogenous technological progress do have long‐term effects. It follows that labour market deregulation does not necessarily reduce steady‐inflation unemployment. Theoretically, if the decline in real wage growth claims owing to deregulation is smaller than the ensuing decline in labour productivity growth and in the warranted real wage growth, then in that case steady‐inflation unemployment may increase. Empirical evidence for 20 Organisation for Economic Cooperation and Development (OECD) countries (1984–1997) indicates that the impact of labour market deregulation on OECD unemployment is zero, and possibly negative (causing a higher rate of unemployment).     

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.     

Rigid labour markets with trade and capital mobility: theory and evidence

Abstract We develop a multi‐country model with imperfect labour markets to study the effect of labour market frictions on bilateral trade flows. We use a framework that allows for goods trade and capital mobility and show that labour market imperfections exert opposite effects in the absence of capital mobility (the short run) and its presence (the long run), respectively. In the short run, a higher degree of labour market rigidity decreases the value of total trade, but increases the share of intra‐industry trade for a country that is larger than its trading partner. The reverse effects are observed when capital is allowed to cross country borders. Using data on unemployment and income distribution for 23 OECD countries, we compute the central parameter in our theoretical model that describes the degree of labour market rigidity. We use this new empirical concept to provide evidence for our theoretical findings by means of reduced‐form regressions as well as simulation results of a calibrated general equilibrium model.     

Can the augmented Solow model explain China’s remarkable economic growth? A cross-country panel data analysis

China’s economy grew at an average annual rate of 9% over the last three decades. Despite the vast empirical literature on testing the neoclassical model of economic growth using data on various groups of countries, very few cross-country regressions include China and none of them particularly focuses on the explanation of China’s remarkable economic growth. We attempt to fill this gap by utilising panel data on 146 countries over the period 1980–2004 to examine the extent to which the rapid growth of China and the huge gap in the growth rate between China and other countries can be explained by the augmented Solow model. Using system GMM estimation techniques, we find that, in spite of the restrictive assumptions involved, the Solow model augmented by both human capital and structural change provides a fairly good account of international variation in economic growth. In particular, China’s relative success in economic growth is due to high physical capital investment, conditional convergence gain, dramatic changes in the structure of employment and output, and low population growth.     

Heterogeneity and Spatial Dependence of Regional Growth in the EU: A Recursive Partitioning Approach

We use model‐based recursive partitioning to assess heterogeneity of growth and convergence processes based on economic growth regressions for 255 European Union NUTS2 regions from 1995 to 2005. Spatial dependencies are taken into account by augmenting the model‐based regression tree with a spatial lag. The starting point of the analysis is a human‐capital‐augmented Solow‐type growth equation similar in spirit to Mankiw et al. (1992, The Quarterly Journal of Economics, 107, 407–437). Initial GDP and the share of highly educated in the working age population are found to be important for explaining economic growth, whereas the investment share in physical capital is only significant for coastal regions in the PIIGS countries. For all considered spatial weight matrices recursive partitioning leads to a regression tree with four terminal nodes with partitioning according to (i) capital regions, (ii) non‐capital regions in or outside the so‐called PIIGS countries and (iii) inside the respective PIIGS regions furthermore between coastal and non‐coastal regions. The choice of the spatial weight matrix clearly influences the spatial lag parameter while the estimated slope parameters are very robust to it. This indicates that accounting for heterogeneity is an important aspect of modeling regional economic growth and convergence.     

Skilled Labour and International Specialisation in OECD Countries

Human capital and skilled labour are likely to become increasingly important determinants of industrial localisation. This paper calculates the factor content—the services of skilled labour, classified by level of education, embodied in trade in manufactures—for a sample of OECD countries in 1970–85. USA and Japan show a strong ‘revealed comparative advantage’ in human capital intensive production. In general, OECD countries where highly educated labour is abundant tend to specialise in and export skill intensive goods. Changes in the ranking with respect to specialisation in skill intensive goods, in particular the strong improvement of Japans' position, seem to be linked to different rates of accumulation of human capital.     

Recent trends and structural breaks in the US and EU15 labour productivity growth

This article examines shifts in labour productivity growth in the US and in Europe between 1970 and 2007 based on econometric tests of structural breaks. Additionally, it makes use of time-series-based projections of labour productivity growth up to 2009 in order to detect breaks depending on confidence intervals of the projections. The identification of structural breaks in the US labour productivity growth is far from obvious. A statistically significant break is found in the late 1990s only if at least the 97.5th percentile of forecasts materializes in the future, which means that despite a clear pick up in productivity growth in the second half of the 1990s, the size of the hump is not large enough compared with past variations to make this change a statistically significant break. However, a significant break point is detected in the mid-1990s for the difference in labour productivity growth between the US and the EU15, even when controlling for the convergence of Europe towards the US productivity levels that has contributed to higher European performance in the early catch up phase. Finally, within Europe, the accumulation of Information and Communication Technology (ICT) capital seems to be related to differences in the shifts in structural labour productivity growth across countries.     

Sector Specific Wage Rigidity and Factor Accumulation*

Economic expansion resulting from factor accumulation is introduced in the mobile capital and small open economy version of the Harris-Todaro model. Among other things, it is shown that economy expansion leads to normal effects on urban unemployment if land is introduced as a scarce input in the agricultural sector. However, capital accumulation and labour growth have indeterminate effects on the absolute level of urban unemployment.     

Measuring Human Capital Like Physical Capital: What Does It Tell Us?

In this paper, I develop a measure of human capital stock that is similar to measuring physical capital by its replacement cost. This measure builds on measures of average educational attainment of the labour force. While it is far from an ideal measure, it is an interesting complement to the educational attainment series and other existing measures of human capital accumulation. In cross–country panel regressions, use of this measure of human capital accumulation yields a positive and significant, but relatively small (about ten per cent) elasticity with percapita GDP growth. Unlike physical capital, the stock of human capital as a share of GDP increases with GDP. This is consistent with the Barro et al . (1995) model of growth with non–mobile human capital and with some predictions of Romer's (1990) model of endogenous growth, but it is not consistent with the predictions of some other growth models.     

Who gains from capital market integration? Tax competition between unionized and non‐unionized countries

The welfare effects of capital market integration are examined under a model of tax competition with two asymmetric countries. The asymmetry is expressed through the labour market: one country has a perfect labour market whereas the other country's labour market is unionized. Our results indicate that the welfare effects of capital market integration differ depending on whether governments are active or passive in attracting capital. In the absence of active governments, capital market integration benefits the country with a competitive labour market whereas it harms the unionized country. Capital market integration benefits both countries if governments are active and compete for mobile capital using taxes/subsidies.     

Structural transformation in Egypt,Morocco and Tunisia: Patterns,drivers and constraints

This study analyses structural transformation in three Middle East and North Africa (MENA) countries: Tunisia, Morocco and Egypt over a large time period (1960–2010). We examine labour productivity evolution and structural change contribution to productivity growth over different sub‐periods. We analyze the contribution of different economic sectors to aggregate structural change in the three countries. An econometric analysis is also performed to identify the main factors underlying the intensity and the pattern of structural change. Results suggest that the three countries initiated and achieved some progress in structural transformation over the 1970s, 1980s and early 1990s. However, this process has stagnated at low‐income levels and has remained unfinished. Deindustrialization occurred at an early stage of development in the three countries, in contrast to that noticed in developed and emergent countries. The results of the econometric analysis suggest a significant and positive association between investment and structural change as capital accumulation increases the future productive capacity and triggers reallocative efficiency. The human capital quality and availability has a positive and significant impact on structural change. Trade openness is also expected to boost structural transformations. However, labour market rigidity hampers structural transformation.     

Three levels of education and the economic growth

The aim of this article is to solve the question how the three main stages of education contribute to the labour productivity growth in selected 125 countries in the period 1999–2014. The model is based on the neoclassical production function enhanced with human capital. The authors draw on the Penn World Tables 9.0 and UNESCO databases. The key benefit of this article is that human capital is characterized according to the returns to education from average number of years of formal schooling at the primary, secondary and tertiary level. Based on the panel data analysis, the contributions of capital and of the three levels of education to the growth of labour productivity are estimated. At the same time, the model allows to estimate the contribution of total factor productivity. The results of the analysis show that tertiary education has the strongest impact on labour productivity across the considered economies. At the same time, the breakdown of aggregate human capital by level of education leads to better clarification of the effects of human capital and physical capital on labour productivity. The conclusions also indicate a tendency towards rising returns to scale induced by the secondary and tertiary education.     

Technology spillover effects within Spanish communities

The article uses panel data for the period 1990–2010 to estimate technology spillover effects on 17 Spanish communities. Accounting for nonstationarity and cointegration, we use the dynamic OLS estimator to estimate the impact of domestic and non-domestic R&;D capital stock on labour productivity of Spanish communities, taking into account trade-, migration- and foreign direct investment (FDI)-related technology diffusion channels. We find significant trade-related spillover effects within Spanish communities and from EU countries. On average, an increase in the non-domestic R&;D stock of 1% increases their labour productivity between 0.02% and 0.12% if related to bilateral trade pattern. Moreover, migration within Spanish communities has a negative impact ranging between ?0.07% and ?0.16% on labour productivity as the impact of inward migration is dominated by outward migration. There is no robust impact from FDI inflows of OECD countries in general or EU countries in particular. Finally, the domestic R&;D stock, physical capital and human capital are shown to be significant drivers for labour productivity in Spain no matter if non-domestic (local or foreign) spillover effects are trade-, migration- or FDI-related.     

Skilled–unskilled wage inequality,product variety,public input and increasing returns: A static general equilibrium analysis

The paper develops a four sector small open economy model with two traded final good sectors, a public intermediate good producing sector and a nontraded good sector producing varieties of intermediate goods. There are three primary factors: capital, skilled labour and unskilled labour. Industrial sector producing a traded good uses capital, intermediate goods and skilled labour as inputs. Intermediate goods producing sector also uses capital and skilled labour. Public input producing sector and the agricultural sector producing the other traded good use capital and unskilled labour as inputs. It is shown that, if production technologies are the same for the agricultural sector and the public input producing sector and if the scale elasticity of output is very low, then an increase in capital stock (unskilled labour endowment) raises (lowers) the skilled–unskilled wage ratio. However, an increase in skilled labour endowment does not produce any unambiguous effect. On the other hand, an increase in the tax rate on industrial output and/or an increase in the price of the agricultural product, armed with the same set of assumptions, lowers the skilled–unskilled wage ratio.     

On the impact of trade openness on growth: further evidence from OECD countries

This study attempts to examine empirically the implications of the degree of openness for total and individual factor productivity growth in a group of 19 OECD countries over the last three decades. The study combines both time series and cross-sectional data. The model employed is a generalization of the commonly used, growth-accounting model based on the concept of an aggregate production function in which the rate of economic growth is a function of capital and labour accumulation and total factor productivity. It is explicitly assumed that total factor productivity depends, in turn, upon the rate of export expansion. The model is then estimated using the random coefficients approach. While results generally indicate that the relative importance of trade openness on economic growth varies significantly across countries, they also indicate that the role of capital and labour accumulation in fostering economic growth varies with the degree of openness, cross-sectionally as well as across time.     

Redistribution, Fiscal Competition, and the Politics of Economic Integration

The paper examines the consequences of the economic integration of factor markets in a model with two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competition and the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, for example, tax competition for mobile capital is softened as the labour market becomes more integrated and even vanishes if both factors are fully mobile. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.     

How might the negative impact of higher education on growth be explained? The role of vertical qualification (mis)match in an MRW‐type model

This study explores the impact of higher education on growth in 11 new EU members over the period 2000–2016 using an augmented MRW‐type model which takes into account the quality of education and vertical mismatch. More precisely, it tests whether the accelerating increase of college graduates causes an oversupply of educated labour which, in turn, extends the qualification mismatch and adversely affects growth of per capita income. We find that an increase of the most educated labour force does not per se lead to a higher growth rate. The impact of human capital becomes positive and statistically significant only if graduates with occupations requiring tertiary education are considered in the model. In addition, the econometric outcome implies that the extent of skill mismatch is determined primarily by the rising female population with college education and the gross value added of trade‐related services.     

Trade and technological explanations for changes in sectoral labour demand in OECD economies

This paper sets out to establish the main determinants of variations in the demand for aggregate labour in manufacturing and service sectors (22) for a cross-section of OECD countries (14). A relatively new panel data set is employed in the analysis, the OECD's International Sectoral Data Base. Preliminary analysis revealed that the ‘within’ sector variation in the wage share dominated overall variation for most countries and time periods. A separate dynamic model was thus generated to explain the ‘within’ sector variation in the wage share. This model contained real wages, output, the capital stock, technological change (total factor productivity) and trade (the imports to value-added ratio) as independent variables. In addition the wage level was also interacted with these explanatory variables on the presumption that skill is positively correlated with the level of wages. Because of the potential for simultaneity bias, estimation was conducted by IV and OLS. The main findings were that the capital stock and technological change were the main determinants of shifts in labour demand. While some countries reported the trade variable as significant its influence was only of slight importance in most cases. The interaction terms proved to be significant in a large number of countries. Some evidence was found that capital and technological were complementary with skill. Overall it was found that broad agreement existed across countries in the factors which influence labour demand despite considerable differences in the cross-country nature of labour market institutions.