Regional variation in firm formation: Panel and cross-sectional data evidence from Finland

This paper investigates regional variation in firm formation in Finland between 1989 and 1993. Firstly, the paper describes the firm formation process in 19 regions and 88 subregions, and finds that there has been a clear variation in firm formation across those areas. Secondly, the paper discusses the regional factors which in the literature have most often been found to affect firm formation at the regional level, and estimates the effects of those factors on firm formation utilizing panel data which consists of the Finnish subregions and the five years from 1989 to 1993. Panel data evidence show that the presence of small firms tends most robustly to explain firm formation in Finland. Thirdly, the paper estimates the effects of those regional factors on firm foundation in Finland using cross-sectional data, and compares the results with those obtained by similar methods for several European countries and the USA. Cross-sectional results tend to show that demand growth is also an important factor explaining regional firm formation. An additional finding is that cross- sectional results for Finland appear to be similar to those for other countries, whereas panel data results tend to be somewhat poorer. This implies that there is substantial variation in entry conditions across subregions, and that some of the effects of these entry conditions are being captured by subregion-specific intercept terms, rather than by the explanatory variables used.

Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?

This paper investigates the evolution of regional disparities in Finland between 1988 and 1997. The analysis focuses on per capita GDP and its subcomponents, particularly labour productivity, jobs and population. The results show, first, that the evolution of labour productivity and the number of jobs account for the emerged regional divergence of per capita GDP during 1990-1995. Second, even though inter-regional migration tends to have convergent effects on regional per capita GDP, its effect was not strong enough during 1990-1995: the divergence of productivity and jobs dominated. Third%2C among divergent factors (productivity and jobs), manufacturing contributes the most to the divergence of per capita GDP, whereas private services is the main convergent sector. Finally, the divergence of regional productivity (or jobs) in a sector does not necessarily contribute to regional divergence of overall per capita GDP, since the most productive activity (or most of the jobs) in some sector are not necessarily located in regions where per capita GDP is the highest.

Effect of business subsidies on labour demand: overall evaluation with regional extensions

This paper investigates the effects of business subsidies on the employment of firms, and explores possible regional differences in the effects. Employment of firms is annually followed between 1995-1998. We find that employment subsidies increase firms' own employment payroll on average by 5.0 - 5.5 per cent. At the average values however, the marginal effect of subsidies is 10 percent, i.e. one Euro higher subsidy increases subsidies by 10 cents. This suggests that the proportion of subsidies of the average-waged employee is as high as 91 per cent. In contrast, we do not find positive or negative effect of Investment and operation subsidies or R&D subsidies on employment of firms. Finally, regional results show that the subsidy effects have been slightly stronger in central areas of Finland than in countryside, suggesting that employment subsidies have contributed to divergence of regional economies in Finland.

Matching in thin labour markets: panel data evidence from Finland, 1991-2002

The matching function that postulates a relationship between the flow of new matches and stock of job seekers and vacancies has attracted considerable attention, both theoretical and empirical during the last decade. In this paper the properties of a matching function are examined by using a large panel data set from Finland. The data has a high frequency and it is highly disaggregated, comprising monthly data on 174 work-to-travel areas from a 12-year period between January 1991 and August 2002. We test for density effects, i.e. the importance of the size of markets on matching efficiency. The robustness and importance of our empirical findings are guaranteed by the quality of data. First the data allows us to model matching functions for two different measures of endogenous variables, namely total matches and total outflow from unemployment. Second, we can measure job seekers by their origin, i.e. whether they are unemployed, employed or outside of the labour force. We can thus construct matching models where the measure of job matches and the pool of job searchers are consistent with each other. Third, the data includes information on the composition of the registered job seekers, including age, sex and the share of short- and long-term unemployment. These controls provide interesting information on possible differences in matching rates by these groups.

Factor Price Equalization in Finland

The Heckscher-Ohlin trade model leads to clear conclusions on the absolute and relative factor prices in a two-commodity specification of the model where both commodities are produced and factors can move freely within the economy. Even though the tests on factor price equalization fail in international comparisons, regional approach offers a prospective way of characterizing how factors of production, e.g. skilled and unskilled labor are utilized in optimally behaving markets and which potential reasons are behind deviating from the ideal situation. Within one economy, Finland, where regions are well integrated nationally by goods trade and factor mobility, we test factor price equality between regions. Robust tests derived from Heckscher-Ohlin trade model developed by Bernard and Schott (2001) and further by Bernard et al. (2002) are used for testing the absolute and relative equalization between factor prices. As a distinction to absolute equalization, the relative equalization allows regional differences in the total factor productivity. The tests are robust to unobserved regional productivity differences, unobserved regional factor quality differences and variations in production technology across industries. Regional relative factor prices can also be used for studying regional industry mix (different cones of diversification) that can vary between regions but are in accordance with the theory. These different industry mixes on the other hand imply different skill-premium to prevail in different regions depending on the availability of endowments. Large supply of skilled labor will result in lower relative wages for skilled labor. Tests are applicable to any pairs of factors and do not necessarily need information e.g. on capital inputs. We compare the results with similar regional studies conducted in the United States and the United Kingdom. Compared to flexible labor markets in the U.S. and small but densely populated United Kingdom, the differences are expected to be even larger in Finland, since the country is a sparsely populated but relatively large country. Markets are well integrated in Finland, though, and common regulations prevail throughout the country. The data used for Finland deviates from the reference studies. We utilize Population Census of employed labor force and concentrate the analysis on the manufacturing sector between 1987 and 1999. We start with one cross-section and then extend the analysis to several years. The data includes 135 000 observations based on employment relations. Education level is used for dividing the labor force into skilled and unskilled labor force. The data is connected with the information on provincial identification as well as the industry coding of the employer. The country is divided to 15 employment regions and the employer coding follows 3-digit SITC classification. Both in the U.S. and the UK the hypothesis on the same relative factor prices are widely rejected in the literature. As an explanation there may be varying industry mixes, region-industry technology differences, agglomeration and increasing returns to scale. For Finland we aim at estimating possible regionally varying effects of joining to European Union and are regions differentially exposed to pressures from increased international trade.

Regional Matching Frictions and Aggregate Unemployment

The study shows that a stochastic frontier approach applied to regional level data offers a convenient and interesting method to examine how regional differences in matching efficiency and structural factors contribute to aggregate unemployment. The study finds notable and time-wise stable differences in the matching efficiency across travel-to-work areas in Finland. If all areas were as efficient as the most efficient one, the number of hires would increase about 40 per cent. This would decrease the aggregate unemployment rate from the current 8.5 percent level to 6.0 per cent. If all the areas shared the same structural characteristics as the most favourable area, the aggregate unemployment rate would drop to 7.1 per cent.

Talouden rakenteet 2011

”Talouden rakenteet 2011” on Valtion taloudellisen tutkimuskeskuksen vuosittain julkaisema laaja ja tiivis tietopaketti Suomen taloudesta ja sen kehityksestä. Julkaisussa painotetaan julkisen talouden kuvausta. Verotusta ja menorakenteita vertaillaan myös kansainvälisesti. Painotus heijastaa sekä tutkimuskeskuksen tehtäväkenttää että tehokkaan julkisen sektorin merkitystä kilpailukykytekijänä. Raportti tarkastelee myös kansantalouden kehitystä, työmarkkinoita, hyvinvointieroja ja ilmastopolitiikan haasteita. Talouden rakenteet -teos ei ensisijaisesti kuvaa suhdannevaihteluja vaan kansantalouden ja julkisen talouden rakenteellisia kehityspiirteitä. Teos kokoaa yhteen tilastotietoja ja tutkimuskeskuksen tutkimuksiin perustuvia tiivistyksiä kansantalouden ja julkisen sektorin toiminnasta. Se ilmestyy vuorovuosina suomen- ja englanninkielisenä

An Analysis of Private School Closings

We add to the small literature on private school supply by exploring exits of K-12 private schools. We find that the closure of private schools is not an infrequent event, and use national survey data from the National Center for Education Statistics to study closures of private schools. We assume that the probability of an exit is a function of excess supply of private schools over the demand, as well as the school's characteristics such as age, size, and religious affiliation. Our empirical results generally support the implications of the model. Working Paper 07-0