nep-eec New Economics Papers
on European Economics
Issue of 2005‒05‒23
twelve papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Migration, Co-ordination Failures and EU Enlargement By Tito Boeri; Herbert Brücker
  2. Educated Preferences: Explaining Attitudes Toward Immigration in Europe By Jens Hainmueller; Michael J. Hiscox
  3. Formation of social capital in Central and Eastern Europe: Understanding the gap vis-à-vis developed countries By Jan Fidrmuc; Klarita Gërxhani;
  4. Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis By Balázs Égert; László Halpern;
  5. Non-Linear Exchange Rate Dynamics in Target Zones: A Bumpy Road Towards A Honeymoon Some Evidence from the ERM, ERM2 and Selected New EU Member States By Jesús Crespo-Cuaresma; Balázs Égert; Ronald MacDonald
  6. Work Disability is a Pain in the *****, Especially in England, The Netherlands, and the United States By James Banks; Arie Kapteyn; James P. Smith; Arthur van Soest
  7. Simulating the Future Pension Wealth and Retirement Saving in Sweden By Röstberg, Anna; Andersson, Björn; Lindh, Thomas
  8. Estimating pension wealth of ELSA respondents By James Banks; Carl Emmerson; Gemma Tetlow
  9. Is Marriage Poisonous? Are Relationships Taxing? An Analysis of the Male Marital Wage Differential in Denmark By Nabanita Datta Gupta; Nina Smith; Leslie S. Stratton
  10. When and How to Create a Job: The Survival of New Jobs in Austrian Firms By René Böheim; Alfred Stiglbauer; Rudolf Winter-Ebmer
  11. The Employment Effects of the October 2003 Increase in the National Minimum Wage By Richard Dickens; Mirko Draca
  12. Power Law Tails in the Italian Personal Income Distribution By Fabio Clementi; Mauro Gallegati

  1. By: Tito Boeri (Bocconi University Milan, IGIER and IZA Bonn); Herbert Brücker (DIW Berlin, Aarhus School of Business and IZA Bonn)
    Abstract: European migration policies are characterised by a fundamental paradox: they are getting tighter and tighter just while public opinion is becoming more favourable to migrants and the immobility of European citizens expands the scope for spatial arbitrage, accruing the benefits, of immigration. In this paper we consider two possible explanations for this puzzle. At first, based on a computable general equilibrium model, we evaluate whether migration to "rigid labour markets" a-la European involves cost, which are neglected by economic theory. Our results suggest that the economic benefits from international migration are, at a GDP gain of 0.2-0.3% at a migration of 1% of the labour force, but that natives in the receiving countries may lose out especially when generous unemployment benefits are provided to the migrants. Then, we evaluate effects of co-ordination failures in the setting of national migration policies, documenting that a race-to-the-top in migration restrictions has indeed occurred in the case of the Eastern Enlargement of the EU and has involved significant diversion of migration from more restrictive to less restrictive countries. Finally we discuss two potential ways to invert the trend towards stricter barriers to migration, namely i) restricting access to welfare and ii) adopting an EU-wide migration policy.
    Keywords: migration, enlargement, welfare door
    JEL: J61 F16 F2
    Date: 2005–05
  2. By: Jens Hainmueller (Harvard University); Michael J. Hiscox (Harvard University)
    Abstract: Recent studies of individual attitudes toward immigration emphasize concerns about labor market competition as a potent source of anti- immigrant sentiment, in particular among less-educated or less-skilled citizens who fear being forced to compete for jobs with low-skilled immigrants willing to work for much lower wages. We examine new data on attitudes toward immigration available from the 2003 European Social Survey. In contrast to predictions based upon conventional arguments about labor market competition, which anticipate that individuals will oppose immigration of workers with similar skills to their own, but support immigration of workers with different skill levels, we find that people with higher levels of education and occupational skills are more likely to favor immigration regardless of the skill attributes of the immigrants in question. Across Europe, higher education and higher skills mean more support for all types of immigrants. These relationships are almost identical among individuals in the labor force (i.e., those competing for jobs) and those not in the labor force. Contrary to the conventional wisdom, then, the connection between the education or skill levels of individuals and views about immigration appears to have very little, if anything, to do with fears about labor market competition. This finding is consistent with extensive economic research showing that the income and employment effects of immigration in European economies are actually very small. We find that a large component of the effect of education on attitudes toward immigrants can be accounted for by differences among individuals in cultural values and beliefs. More educated respondents are significantly less racist and place greater value on cultural diversity; they are also more likely to believe that immigration generates benefits for the host economy as a whole. Together, these factors account for around 65% of the estimated effect of education on support for immigration.
    Keywords: Immigration Preferences, Immigration Attitudes, Trade Preferences, Factor-Proportion Model, Education Effects, Skill Effects
    JEL: F22 J61 P16
    Date: 2005–05–19
  3. By: Jan Fidrmuc; Klarita Gërxhani;
    Abstract: Recent Eurobarometer survey data are used to document and explain the stock of social capital in 27 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption appear particularly important.
    Keywords: social capital, institutions, capitalism, transition
    JEL: Z13 P37 O57 O17
    Date: 2005–04–01
  4. By: Balázs Égert; László Halpern;
    Abstract: This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa-Samuelson effect, Behavioural Equilibrium Exchange Rate, Fundamental Equilibrium Exchange Rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.
    Keywords: equilibrium exchange rate, Balassa-Samuelson effect, meta-analysis
    JEL: C15 E31 F31 O11 P17
    Date: 2005–05–01
  5. By: Jesús Crespo-Cuaresma; Balázs Égert; Ronald MacDonald
    Abstract: This study investigates exchange rate movements in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) and in the Exchange Rate Mechanism II (ERM-II). On the basis of Bessec (2003), we set up a three-regime self-exciting threshold autoregressive model (SETAR) with a non-stationary central band and explicit modelling of the conditional variance. This modelling framework is employed to model daily DM-based and median currency-based bilateral exchange rates of countries participating in the original ERM and also for exchange rates of the Czech Republic, Hungary, Poland and Slovakia from 1999 to 2004. Our results confirm the presence of strong non-linearities and asymmetries in the ERM period, which, however, seem to differ across countries and diminish during the last stage of the run-up to the euro. Important non-linear adjustments are also detected for Denmark in ERM-2 and for our group of four CEE economies.
    Keywords: target zone, ERM, non-linearity, SETAR.
    JEL: F31 G15 O10
    Date: 2005–05–01
  6. By: James Banks (Institute for Fiscal Studies & University College, London); Arie Kapteyn (RAND Corporation); James P. Smith (RAND Corporation); Arthur van Soest (RAND Corporation & Tilburg University)
    Abstract: This paper investigates the role of pain in determining self-reported work disability in the US, the UK, and The Netherlands. Even if identical questions are asked, cross-country differences in reported work disability remain substantial. In the US and The Netherlands, respondent evaluations of work limitations of hypothetical persons described in pain vignettes are used to identify the extent to which differences in self-reports between countries or socio-economic groups are due to systematic variation in the response scales.
    Keywords: Work limiting disability, Vignettes, Reporting bias
    JEL: J
    Date: 2005–05–19
  7. By: Röstberg, Anna (Uppsala University); Andersson, Björn (Sveriges Riksbank); Lindh, Thomas (Institute for Futures Studies)
    Abstract: In this paper the wealth consequences of the Swedish pension system in the transition from a defined benefit to notional defined contribution system are simulated with almost exact institutional detail, using life cycle profiles estimated from detailed longitudinal micro data. Projected wealth, including different types of pension wealth, are computed and compared between cohorts, gender, wealth deciles and occupational categories. Consistent saving rates and replacement rates allowing consumption to stay constant after retirement are computed. Two different macroeconomic scenarios are considered, one using stylised values for growth, inflation etc. and another using demographically based forecasts. Some conclusions are that the cohorts born in the 1940s are relatively favoured, and so are the wealthiest deciles. Stylised macro assumptions yield more optimistic wealth projections than those corresponding to demographically based projections.
    Keywords: Future Pension Wealth; Retirement Saving in Sweden
    JEL: G23 H55 J14
    Date: 2004–09
  8. By: James Banks (Institute for Fiscal Studies and University College London); Carl Emmerson (Institute for Fiscal Studies); Gemma Tetlow (Institute for Fiscal Studies)
    Abstract: This paper explains the methodology used for calculating pension wealth for all individuals in the first wave of the English Longitudinal Study of Ageing (ELSA). We focus on the pension wealth of individuals aged between 50 and the state pension age. Both state and private pension wealth has been calculated and each has been calculated both on the basis of immediate retirement in 2002 and on the basis of retirement at the state pension age. Sensitivity analysis of our assumptions is also presented, which shows that the distribution of pension wealth is sensitive to our assumptions about the discount rate and contracting out histories but insensitive to assumptions about future earnings growth, future annuity rates and future asset returns.
    Date: 2005–05
  9. By: Nabanita Datta Gupta (Danish National Institute of Social Research, CIM and IZA Bonn); Nina Smith (Aarhus School of Business, CIM and IZA Bonn); Leslie S. Stratton (Virginia Commonwealth University, CIM and IZA Bonn)
    Abstract: The word for ‘married’ in Danish is the same as the word for ‘poison’. The word for 'sweetheart' in Danish is the same as the word for 'tax'. In this paper we expand upon the literature documenting a significant marital wage premium for men in the United States to see if a similar differential exists for married men in Denmark - or if the homonyms have perhaps less of a double meaning. Unlike most other research in this area, our study is based on a large panel sample with complete relationship histories, consisting of about 35,000 young Danish men observed before and after their first marriage or cohabitation during the years 1984-2001. Since the majority of young Danes cohabit before they marry, if they ever marry, cohabitation is allowed for as a separate state. Pooled OLS estimates indicate a marital wage premium of 4-5%, which drops to 2% after controlling for selectivity. The cohabitation premium is found to be of the same size as the marital wage premium. Our results indicate that a part of the marriage or cohabitation premium is not due to marriage or cohabitation itself, but to fatherhood. When information on becoming a father and years spent in fatherhood is added to the empirical model, the results show that fathers receive a ‘fatherhood’ premium during their first few years as fathers and that the initial marital wage premium is reduced.
    Keywords: marriage premium, cohabitation, fatherhood
    JEL: J12 J31
    Date: 2005–05
  10. By: René Böheim (University of Linz and IZA Bonn); Alfred Stiglbauer (Austrian National Bank); Rudolf Winter-Ebmer (University of Linz, Institute for Advanced Studies Vienna, CEPR and IZA Bonn)
    Abstract: While the volatility of job creations has been studied extensively, the survival chances of new jobs are less researched. The question when and how to expand a firm is of importance, both from the firms and from a macro perspective. Adjustment cost theories and arguments about option values of investment in firm expansion make predictions about the timing, sequencing and form of firm expansions. When we analyze 21 years of job creation in Austria, we find that the survival of new jobs (and of new firms) depends upon the state of the business cycle at the time of job creation, on the number of jobs created, and on firm age. Jobs in new firms last longer than new jobs in continuing firms.
    Keywords: job creation, business cycle, reallocation, persistence
    JEL: J23 J63 E24 E32
    Date: 2005–05
  11. By: Richard Dickens (Queen Mary, University of London); Mirko Draca (Centre for Economic Performance, London School of Economics)
    Abstract: Initial research on the employment impact of the introduction of the National Minimum Wage has shown no evidence of any significant employment loss (Stewart, 2002, 2003, 2004). Against this background the NMW was raised substantially in October 2003 from £4.20 to £4.50 and again in October 2004 to £4.85. These are quite large increases in the NMW and they have been predicted to raise the wages for a substantial proportion of employees in the UK. Some concerns have been raised in the business community about the size of these increases, with some large employers claiming that for the first time the NMW will affect their pay structures. In this report we examine the impact of the October 2003 increase in the NMW on employment. We use a methodology first proposed by Linneman (1982) and used more recently by Stewart (2003, 2004) to examine the introduction of the minimum wage. This essentially examines individual transitions out of employment, comparing a group of workers directly affected by the NMW with a similar but unaffected group.
    Keywords: Minimum wages, Employment transitions, Wages.
    JEL: J31 J63
    Date: 2005–05
  12. By: Fabio Clementi (Department of Public Economics, University of Rome 'La Sapienza'); Mauro Gallegati (Department of Economics, Università Politecnica delle Marche)
    Abstract: We investigate the shape of the Italian personal income distribution using microdata from the Survey on Household Income and Wealth, made publicly available by the Bank of Italy for the years 1977-2002. We find that the upper tail of the distribution is consistent with a Pareto power-law type distribution, while the rest follows a two-parameter lognormal distribution. The results of our analysis show a shift of the distribution and a change of the indexes specifying it over time. As regards the first issue, we test the hypothesis that the evolution of both gross domestic product and personal income is governed by similar mechanisms, pointing to the existence of correlation between these quantities. The fluctuations of the shape of income distribution are instead quantified by establishing some links with the business cycle phases experienced by the Italian economy over the years covered by our dataset.
    Keywords: Personal income; Pareto law; Lognormal distribution; Income growth rate; Business cycle
    JEL: D1 D2 D3 D4
    Date: 2005–05–18

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