Decomposing the Dynamics of Regional Earnings Disparities in Israel

The literature on regional growth convergence and economic disparities has tended to confound four interwoven measurement phenomena. i) mean reversion (so-called beta convergence) where richer regions move towards the average from above and poorer regions from below. ii) diminishing inequality (so called sigma convergence) where the horizontal or spatial distribution of income becomes more equal. iii) mobility, where the rank of a region in the overall distribution of income changes either upwards or downwards. iv) leveling, where the richer regions become poorer (leveling-down) or the poorer regions become richer (leveling-up). We use a new statistical methodology, which treats these four phenomena on an integrated basis. The methodology is applied to Israeli regional earnings and house price data. We find that whereas earnings are strongly sigma divergent during the 1990s, this trend is offset when regional cost of living differences are taken into consideration. In this event, regional housing markets induce convergence in similar measure to the divergence induced by regional labor earnings.

Regional Heterogenity and Conditional Convergence

This paper stresses the importance of accounting for regional heterogenity in the dynamic analysis of regional economic disparities. Studies of regional growth invariably presume regions are homogenous in that their socio-demographic composition is assumed to be broadly similar. We argue that any analysis of regional convergence needs to be tested conditionally, i.e. conditional upon the socio-demographic structure of the workers in the various regions. To this end, we estimate various measures of conditional regional earnings inequality using Israeli regional data for the period 1991-2002. Our results show that much of the regional earnings inequality may be accounted for by the conditioning variables. Both in measures of regional convergence and regional mobility, conditioning makes a large difference to the results accounting for up to half of the observed levels of inequality. Ignoring regional heterogeneity may therefore lead to serious over-estimation of the underlying level of regional inequality.

Job Vacancy Chains and Local Employment Creation; the Case of Supply-Side Restrictions

The job-chains model of local labor market change is a demand-driven analytic device for estimating the effects of new job creation. This paper explores the effects of restricting supply, i.e. limiting job access, on the model’s primary outcomes: vacancy chain multipliers, welfare effects and distributional impacts. Major sources of labor supply are the local unemployed, out of the labor force and in-migrants. Three simulations are reported relating to 1) restricting new jobs to current local residents (i.e. no in-migrants), 2) restricting new jobs to current residents in the first round of hiring only and 3) restricting hiring to local unemployed/out of labor force on the first round alone. The results are compared to the basic model that assumes no supply-side restrictions. In terms of chain length, welfare effects, distributional impacts and policy palatability, first round restrictions on in-migrants would seem to be the most plausible option. However, as an economic development strategy,well targeted demand-side initiatives would still seem to be preferable.

Measuring Regional Disparities in Small Countries

Though individual studies of regional disparity may deal with separate development measures - population growth, wages, welfare, regional productivity, etc. - the use of an integrated indicator is often essential, particularly if a comparative (cross-country) analysis is required. In order to measure the extent of disparities, various indices of inequality are commonly used. The goal of present study was to determine whether commonly used inequality measures (Gini, coefficient of variation, etc.) produce meaningful estimates when applied to small countries, thus making it possible to compare the results of analysis obtained for such countries with those obtained elsewhere. As we argue, a small country may differ from a country of larger size in three fundamental features. First, it is likely to have a relatively small number of regional divisions. Second, its regional divisions are likely to vary considerably in their population sizes. Lastly, regions of a small country may rapidly change their rank-order positions in the country-wide hierarchy, by changing their attributes (e.g., population and incomes). In contrast, in a large country such rank-order changes may be both less pronounced and slower-acting. In order to formalize these distinctions, we designed simple empirical tests, in which income and population distributions, presumably characteristic for small countries, were compared with a “reference” distribution, assumed to represent more accurately a country of a larger size. In the latter (reference) distribution, the population was distributed evenly across regional divisions and assumed to be static. In the first test, we checked whether the overall number of regions matters. In the second, we tested whether different inequality indices respond to differences in the regional distribution of population, viz., evenly spread population in the reference distribution vs. unevenly spread population in the test distribution. Finally, in the third test, we verified whether different inequality indices were sensitive to the sequence in which regions are introduced into the calculation. Somewhat surprisingly, none of the indices we tested appeared to pass all the tests, meaning that they may produce (at least in theory) misleading estimates if used for small countries. However, two population weighted indices – Williamson and Gini - appeared to exhibit only minor flaws and may thus be considered as more or less reliable regional inequality measures. Although further studies on the performance of different inequality indices may be needed to verify the generality of our observations, the present analysis clearly cautions against indiscriminate use of inequality indices for regional analysis and comparison.

Job vacancy chains in metropolitan labor markets

Metropolitan Labor markets are characterized by gross flows, much larger than the traditional net measures of employment change might suggest. Standard impact analyses of employment change tend to either ignore these flows or treat them as a matter of 'job churning'. But in a metropolitan area experiencing involuntary unemployment and underemployment, these flows may offer real opportunities for individuals to improve their employment positions. Such improvement occurs along 'job chains' in which a new vacancy opens a sequence of job changes allowing workers to move closer to their full employment wage. Not all chains are of the same length, nor does every chain produce the same welfare gain. This paper presents a model of job chaims which addresses chain length, welfare gains and distributional effects. The application of the model is illustrated using a hypothetical case of a new manufacturing firm in the Chicago metropolitan area. The job chains approach to estimating multiplier, efficiency and distributional effects associated with the firm, is compared with conventional impact analysis estimates. The conclusions discuss the implications of these estimates for the evaluation of local economic development projects.

What are Jobs Worth?

How much are jobs subsidized by state and local governments really worth? Policymakers have achieved surprisingly little consensus on the character and size of gains from economic development projects. Measurement of such gains must inevitably derive from a vision of the labor market. For subsidies to generate real gains for local workers, those workers must be unemployed or underemployed. Recent research on job chains provides a natural approach to such measurement issues. It addresses not only the number of job vacancies created as a result of a subsidized business investment o

Does Trickle Down Work?: Economic Development Strategies and Job Chains in Local Labor Markets

Persky, Felsenstein, and Carlson explore a new framework for evaluating state and local economic development efforts. They propose a method, referred to as the “job-chains approach,” that they say clarifies the potential justifications for economic development subsidies as well as the limitations surrounding these efforts. This innovative approach addresses not only the number of job vacancies created as a result of a subsidized business investment or expansion, but also the extent to which gains are achieved by the unemployed and the underemployed, whether skilled or unskilled.https://research.upjohn.org/up_press/1041/thumbnail.jp

Simultaneous modeling of developer behavior and land prices in UrbanSim

JTLU vol 3, No 2 pp 107-127 (2010)A strong inter-dependence exists between the decision to develop land and the expected returns to be gained from that development. Current practice in UrbanSim modeling treats developer behavior and the emergence of land prices as independent processes. This assumes that land prices are exogenous to the interaction between buyers and sellers—an assumption that is difficult to sustain in urban economics and real estate research. This paper presents an attempt to model the two processes as occurring simultaneously. Using the UrbanSim model for metropolitan Tel Aviv, we compare the results of forecasts for densities (residential and non-residential) and land values for the period 2001–2020. Our results show that simultaneous estimation tends to produce more accentuated outcomes and volatile trends. The validity of these results and the implications of this approach in the wider context of land use modeling are discussed

Land use-transportation modeling with UrbanSim: Experiences and progress

JTLU vol 3, no 2, pp 1-3 (2010)As an open source and modular software system using highly disaggregated data for dynamic simulation, UrbanSim has been instrumental in making integrated land-use transportation modeling accessible beyond the bespoke models that characterized earlier generations. The UrbanSim model and the collaborative OPUS framework (Open Platform for Urban Simulation) that it has spawned have stimulated much original progress in this field. The object of this thematic issue of the Journal of Transport and Land Use is to report on this work and to illustrate the various ways UrbanSim has been adapted. However, this special issue is more than just a collection of progress reports. A central theme running through all the papers is that integrated land use-transportation modeling in Europe presents a series of challenges and demands not necessarily present in the United States context in which UrbanSim was developed. Thus, while the UrbanSim system can be technically adapted to European studies given the data and resources, the prevailing land-use transportation environment in Europe differs from the United States