- UNEMPLOYMENT IN EUROPE AND REGIONAL LABOR FLUCTUATIONS

This paper studies the relationship between region-specific shocks in the European labor market and unemployment rates in Europe. The existing empirical literature in this topic employs measures hardly useful to analyze the issue at hand. We use a model for non-stationary evolving distributions to identify disaggregate and aggregate disturbances and analyze their joint dynamics. Our main findings are that unemployment is lower the more alike shocks are across regions and the lower mobility of those regional shocks is. Further, the dynamics of regional shocks have substantial predictive power for aggregate unemployment fluctuations.regional fluctuations, geographical region, unemployment, mismatch index, large crosssection.

Formal education, mismatch and wages after transition: Assessing the impact of unobserved heterogeneity using matching estimators

This paper studies the incidence and consequences of the mismatch between formal education and the educational requirements of jobs in Estonia during the years 1997-2003. We find large wage penalties associated with the phenomenon of educational mismatch. Moreover, the incidence and wage penalty of mismatches increase with age. This suggests that structural educational mismatches can occur after fast transition periods. Our results are robust for various methodologies, and more importantly regarding departures from the exogeneity assumptions inherent in the matching estimators used in our analysis. JEL Classification: J0Education mismatch, Matching Estimators, wage determination

Are specific skills an obstacle to labor market adjustment? Theory and an application to the EU enlargement

We argue that the existence of large amounts of specific human capital makes costly and slows down the adjustment in the labor market after large reallocation shocks. To illustrate this point we build a theoretical framework in which young agents’ career is heavily determined by initial education, and analyze the transition to a new steady-state after a sectoral demand shift. An interesting case study is the EU enlargement, which led to modernization of many sectors in eastern countries and to a fast decline of traditional industries. Using labor force data from a large economy with rigid labor markets, Poland, and a small open economy with increased flexibility, Estonia, we document and find support for our claim. Quantitative exercises suggest that the overspecializaton of the labor force in Poland explain to a large extent the much higher and persistent unemployment compared to Estonia during the period of EU enlargement. JEL Classification: J30Enlargement, Labor Reallocation, Matching, Specific Skills, Vocational Education

Are Specific Skills an Obstacle to Labor Market Adjustment? Theory and an Application to the EU Enlargement

Countries react differently to large labor reallocation shocks. Some minimize the costs by adapting rapidly, while others suffer long periods of costly adjustment, typically high and persistent unemployment and temporary output losses. We argue that the existence of large amounts of specific human capital slows down the transitions and makes them costly. We illustrate this point by building a theoretical framework in which young agents' careers are heavily determined by the type of initial education, and analyze the transition to a new steady-state after a sectoral demand shift. In the absence of mobility, it can take as much as a generation for the economy to absorb the shock. An interesting case study is the European Union enlargement, which led to a modernization of many sectors in Eastern countries and to a fast decline of traditional industries and agriculture. Using labor force data from a large economy with rigid labor markets, Poland, and a small open economy with increased flexibility, Estonia, we document our main claim, namely that specialized education reduces workers' mobility and hence their ability to cope with economic changes. We find that holding a vocational degree is associated with much longer unemployment duration spells, relatively large wage penalties when changing jobs and higher likelihood of leaving activity for elder workers. Quantitative exercises suggest that the over-specialization of the labor force in Poland led to much higher and persistent unemployment compared to Estonia during the period of EU enlargement. Traditional labor market institutions (wage rigidity and employment protection) increased, but to a much lesser extent, the unemployment gap.enlargement, labor reallocation, matching, specific skills, unemployment and vocational education

Public and private sector wages: co-movement and causality

This paper looks at public and private sector wages interactions since the 1960s in the euro area, euro area countries and a number of other OECD countries. The paper reports, first, a strong positive annual contemporaneous correlation of public and private sector wages over the business cycle; this finding is robust across methods and measures of wages and quite general across countries. Second, we show evidence of long-run relationships between public and private sector wages in all countries. Finally, causality analysis suggests that feedback effects between private and public wages occur in a direct manner and, importantly also via prices. While influences from the private sector appear on the whole to be stronger, there are direct and indirect feedback effects from public wage setting in a number of countries as well. We show how country-specific institutional features of labour and product markets contain helpful information to explain the heterogeneity across countries of our results on public/private wage leadership. JEL Classification: C32, J30, J51, J52, E62, E63, H50(partly) government wages, causality, co-movement, private sector wages

The cyclicality of consumption, wages and employment of the public sector in the euro area

This study examines the business cycle behaviour of public consumption and its main components; the public wage bill (including compensation per employee and public employment) and intermediate consumption in the euro area aggregate, euro area countries and a group of selected non-euro area OECD countries (Denmark, Sweden, the UK, Japan and the US). It looks across a large number of variables and methods, using annual data from 1960 to 2005. It finds robust evidence supporting that public consumption, wages and employment co-move with the business cycle in a pro-cyclical manner with 1-2 year lags, notably for the euro area aggregate and euro area countries. The findings reflect mainly the correlation between cyclical developments (automatic stabilizers), but also point to the important role of pro-cyclical discretionary fiscal policies. JEL Classification: E62, E63, H50filtering, Public consumption, public employment, public wages, stylized facts, thick modelling

European women: Why do(n't) they work?

This paper provides an empirical study of the determinants of female participation decisions in the European Union. The analysis is performed by estimating participation equations for different age groups (i.e. young, prime-age and older females), using annual data for a panel of 12 EU-15 countries over the period 1980-2000. Our findings show that the strictness of labour market institutions negatively affects the participation rate. Decisions linked to individual preferences with regards to education or fertility are also found relevant to participation of the youngest and prime-age females respectively. The inclusion of a proxy to capture cohort effects is crucial in order to explain the oldest females’ participation. JEL Classification: J21labour force participation, Labour market institutions

Public and private sector wages:comovement and casuality

This paper looks at public and private sector wages interactions since the 1960s in the euro area, euro area countries and a number of other OECD countries. It focuses on co-movements and causal relationships. To obtain the most robust results possible, we apply a number of alternative empirical methodologies, and perform the analysis for two data samples and different price deflators. The paper reports, first, a strong positive annual contemporaneous correlation of public and private sector wages over the business cycle; this finding is robust across methods and measures of wages and quite general across countries. Second, we show evidence of long-run relationships between public and private sector wages in all countries. Finally, causality analysis suggests that feedback effects between private and public wages occur in a direct manner and, importantly also via prices. While influences from the private sector appear on the whole to be stronger, there are direct and indirect feedback effects from public wage setting in a number of countries as well. We show how country-specific institutional features of labour and product markets contain helpful information to explain the heterogeneity across countries of our results on public/private wage leadership.government wages; private sector wages; causality; co-movement.

Macroeconomics of Education.

This item has no abstract.

Short-term monitoring of fiscal policy discipline

Under the Maastricht Treaty and the Stability and Growth Pact (SGP) European Union (EU) Member States commit themselves to avoid excessive deficits over 3% of GDP and to pursue the medium-term objective of budgetary positions close to balance or in surplus. The SGP provides also regulation for the surveillance of budgetary positions. An analysis of associated tools is the focus of this paper. In particular, it addresses two open issues in the empirical public finance literature which are crucial for monitoring fiscal policy discipline in the EU. First, the estimation of the structural component of the fiscal balance ratio. Second, the computation, when only annual fiscal data is available, of quarterly budget balance ratios, using relevant information from quarterly measured macroeconomic series. An econometric model that addresses both issues is presented and estimated. Additionally, this modelling framework allows us to answer questions such as: what is the safety margin that will prevent a particular country from reaching with certain probability abudget deficit that breaches the 3% upper bound? JEL Classification: C32, E60, H62Interpolation, State Space Modelling, Structural Deficit Ratio