Interaction of Regional Population and Employment over Time: identifying short-run effects and equilibrium adjustment

We investigate the interaction of regional population and employment in a simultaneous model. A focus on regional time series allows us to innovate in two ways on the ongoing causality debate in the literature. Firstly, a dynamic specification is proposed that generalizes the often assumed lagged adjustment process and enables to identify both short and long-term effects. We argue that the long-run relationship between population and employment should be interpreted as a labour market equilibrium. A second improvement on current empirical evidence is the use of region and time-specific fixed effects. Because by applying these panel data techniques, unobserved heterogeneity on the regional level and national trends are controlled for, the identification of regional population-employment interaction is substantially less troubled by an omitted variables problem. The model is estimated on almost three decades of annual data for regions in The Netherlands. This dataset is unique because it includes internal migration, so that we can disentangle net migration and exogenous natural population increase in order to model population adjustment more accurately. Reflecting the geographical structure of the country, which is characterised by overlapping urban areas, we allow for interregional commuting. Our main findings are that in The Netherlands, employment growth responds to deviations from regional labour market equilibria, but net internal migration is only slightly affected by regional employment in the short run. This implies that equilibrium on regional labour markets is restored through adjustment of employment instead of population. It also illustrates the additional insight into dynamic adjustment processes that can be gained from distinguishing both short and long-run effects, the importance of which is confirmed by rejection of the lagged adjustment process hypothesis for our data. Finally, the dominance of supply side factors in the employment equation casts doubt on appropriateness of traditional regional export base and multiplier models, which heavily rely on the assumption that local factor supply constraints are absent.

Are workers compensated by cheaper housing in regions where unemployment is high? Theory and evidence from a housing demand survey

The empirical wage curve literature has demonstrated that workers in high-unemployment regions earn less. At the same time, many labour markets, especially in Europe, are characterised by persistent regional unemployment differentials and a low interregional labour mobility rate. It is argued in this paper that workers in high-unemployment regions are compensated in the housing market, which discourages migration to low-unemployment regions. We derive a multiregional efficiency wage model allowing for endogenous land prices, and therefore house prices, as well as endogenous lot sizes. It is shown that in high-unemployment regions, land prices are lower and lot sizes are larger. Therefore, aggregate regional house price data misrepresent the compensating differential. Employing a Dutch housing demand survey, we show that attribute corrected house prices and rents are 10.4 respectively 2.4 percent lower when regional unemployment is one percent higher.

Employed and unemployed search: The marginal willingness to pay for attributes in Lithuania, the US and the Netherlands

This paper introduces a method for estimating workers' marginal willingness to pay for job attributes employing data on job search activity. Worker's willingness to pay to avoid a temporary contract, which increases the risk of becoming unemployed, is derived for Lithuania. The empirical relevance of this method is further shown re-interpreting studies that examine search behaviour in the U.S. and the Netherlands. We provide estimates of workers' willingness to pay for a wide range of job attributes including the risk of becoming unemployed and promotion prospects. Further, we discuss and apply a method for estimating unemployed individuals' willingness to pay for recall opportunities and the residual entitlement period --

The effect of income on commuting time - an analysis based on panel data

Although urban economics theory predicts that households with higher incomes have different commuting time patterns than low income households, the direction of the effect is ambiguous. From a “value of time” perspective, one can argue that high income households may have shorter commuting times because their time is more precious; thus they choose to live closer to the job and are willing to pay for faster modes of travel. However, it can alternatively be argued that they may have longer commuting times, because they desire and can afford more living space and a higher quality of housing than is available or affordable in closer proximity to employment centres. Empirical testing of these alternative hypotheses is not straight forward because income, itself, is determined by commuting time as workers are willing to travel further for higher wages. This reverse causation must be taken into account in the estimation, but this is often problematic due to a lack of good control variables. In the current paper, we employ panel data to overcome these problems. To deal with reversed causation we only select workers who did not change workplace location during the period. For these workers, changes in commuting time resulting from an income change come about either through a change in residential location or a change in travel mode. In addition, by estimating the effect of annual income changes on commuting time changes, the necessity of good control variables is avoided.

Workers' marginal costs of commuting

This paper applies a dynamic search model to estimate workers' marginal costs of commuting, including monetary and time costs. Using data on workers' job search activity as well as moving behaviour, for the Netherlands, we provide evidence that, on average, workers’ marginal costs of one hour of commuting are about 17 euroOn-the-job search; Job moving; Commuting time; Commuting cost; Willingness-to-pay

Commuting and Panel Spatial Interaction Models: Evidence of Variation of the Distance-Effect over Time and Space

We apply spatial interaction models using panel data to explain commuting behaviour in the Netherlands. Our main conclusion is that the distance-decay effect is not constant over time and that changes in this effect are region specific. In more densely populated regions the change in the distance-decay parameter is small suggesting that regional increases in congestion have a large negative effect on the increases in average commuting distance. The panel spatial interaction model we derive is well-suited for testing significance of the centrality index (an often used variable in spatial interaction models). Although evidence is found for competition effects in a pooled cross section framework, controlling for time invariant unobserved heterogeneity renders this relation spurious.

The workers' value of the remaining employment contract duration

This paper introduces and applies a method for estimating workers' marginal willingness to pay for job attributes employing data on job search activity. Worker's willingness to pay for the remaining duration of the employment contract is derived. We provide evidence that workers attach substantial value to the remaining contract duration. A temporary worker with a remaining contract of 6 months is willing to pay about 10% of the wage to increase the contract by one month.On-the-job search; Job attributes; Contract duration; Temporary job

Transaction Costs in Housing Markets

According to economic theory, there are no strong reasons to tax (or to subsidise) residential moves, although low levels of taxation may be potentially justified to deal with the presence of externalities and economic stability. This is in contrast to practise in most countries where governments have created strong barriers to moving (transaction taxes, rent control) which induces substantial transaction costs. Likely, the welfare losses due to these government-induced transaction costs are substantial

Identification of ‘wasteful commuting’ using search theory

In this paper, we employ search theory as a micro-economic foundation for the wasteful commuting hypothesis. In the empirical analysis, the extent of the ‘wasteful commuting’ is identified by comparing the commute of employees and self-employed individuals who do not work from home. It is argued that the commute of the self-employed is the result of a search process for vacant workplaces, whereas employees search for vacant jobs. Because the arrival rate of workplaces exceeds the arrival rate of jobs, the self-employed have a shorter commute. We find that 35% of the commuting time may be considered ‘wasteful’ and reject alternative hypotheses why the self-employed have a shorter commute.

Coping with uncertainty in the inland navigation market: the impact of climate change

Low water levels are a potential threat to the inland navigation market. We develop a theoretical model to analyze low water-level uncertainty in the inland navigation market. A negative effect of climate change on welfare is expected due to the increase in cost per tonne of transport when low water levels occur more frequently. The market actors may take measures to adapt to the new situation of climate change. As an example, we study barge-size adjustments by barge operators. We show that in the current market (both before and after climate change) there are incentives to almost double the barge size. The reason that this still has not occurred may be explained by the long lifetime of barges that are currently in use. Thus, climate change does not provide a reason to stop the current trend towards larger barges. The only effect is that this trend towards larger barges will end at a lower size than would be the case without climate change. The public sector may also take measures to decrease the harm caused by climate change. In this study we consider an investment in infrastructure by means of dredging. We find a benefit-cost ratio higher than for this for investments both before and after climate change. Thus, both with and without climate change, welfare would increase if government intensifies dredging. After climate change, public adaptation may be more important than private adaptation when the situation is optimal before climate change. For the combined effect of barge-size adjustment and infrastructure investment, it can be concluded that the benefit in terms of expected welfare is 'super-additive' for the situation before climate and also for the situation after climate change when starting from the current situation. This 'super-additivity' property can be attributed to the opportunity for barge operators to hold even larger barges in the new environment where low water is less harmful for their capacities. However, for the situation after climate change, when starting from an optimized situation, super-additivity no longer holds.