nep-eec New Economics Papers
on European Economics
Issue of 2008‒01‒05
38 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Business cycle synchronization and insurance mechanisms in the EU By António Afonso; Davide Furceri
  2. Declining Home Bias and the Increase in International Risk Sharing: Lessons from European Integration By Artis, Michael J; Hoffmann, Mathias
  3. The functional distribution of income: a review of the theoretical literature and of the empirical evidence around its recent pattern in European countries By Simone Bertoli; Francesco Farina
  4. Payment network scale economies, SEPA, and cash replacement By Wilko Bolt; David Humphrey
  5. Reporting biases and survey results - evidence from European professional forecasters By Juan Angel García; Andrés Manzanares
  6. Taylor Rules for the ECB using Consensus Data By Janko Gorter; Jan Jacobs; Jakob de Haan
  7. Prudential and oversight requirements for securities settlement By Daniela Russo; Giacomo Caviglia; Chryssa Papathanassiou; Simonetta Rosati
  8. First Evidence of Asymmetric Cost Pass-Through of EU Emissions Allowances: Examining Wholesale Electricity Prices in Germany By Georg Zachmann; Christian von Hirschhausen
  9. Determinants of International Fragmentation of Production in the European Union By Götz Zeddies
  10. Education and Health in G7 Countries: Achieving Better Outcomes with Less Spending By Stéphane Carcillo; Victoria Gunnarsson; Marijn Verhoeven
  11. Living arrangements in Europe: exploring gender differences and institutional characteristics By Chiuri Maria Concetta; Del Boca Daniela
  12. European carbon prices fundamentals in 2005-2007: the effects of energy markets, temperatures and sectorial production By Emilie Alberola; Julien Pierre Chevallier; Benoît Chèze
  13. The single currency’s effects on Eurozone sectoral trade: winners and losers? By Sergio de Nardis; Roberta De Santis; Claudio Vicarelli
  14. Moving Towards Dual Income Taxation in Europe By Bernd Genser; Andreas Reutter
  15. Comparing Airport regulation in Europe: Is there need for a European Regulator? By Rui Cunha Marques; Ana Oliveira-Brochado
  16. Can Ireland Legislate Contrary to European Community Law? By William Phelan
  17. Inequalities Within Couples: Market Incomes and the Role of Taxes and Benefits in Europe By Francesco Figari; Herwig Immervoll; Horacio Levy; Holly Sutherland
  18. European Patenting and the Size of Investors By Alessandro STERLACCHINI; Francesco SCHETTINO
  19. The decommodified security ratio:<br />A tool for assessing European social protection systems By Georges Menahem
  20. The Private Internal Rates of Return to Tertiary Education: New Estimates for 21 OECD Countries By Romina Boarini; Hubert Strauss
  21. The Elusive Antitrust Standard on Bundling in Europe and in the United States at the Aftermath of the Microsoft Cases By Nicholas Economides; Ioannis Lianos
  22. Employment and Education Policy for Young People in the EU: What Can New Member States Learn from Old Member States? By Francesco Pastore
  23. Finance and Convergence: What's Ahead for Emerging Europe? By Rudolfs Bems; Philip Schellekens
  24. From the Shortage of Jobs to the Shortage of Skilled Workers: Labor Markets in the EU New Member States By Jan Rutkowski
  25. (Un)Happiness in Transition By Sergei Guriev; Ekaterina Zhuravskaya
  26. Religion, attitudes towards working mothers and women’s labor market participation: Evidence for Germany, Ireland, and the UK By Guido Heineck
  27. The Economic Effects of Croatia's Accession to the EU By Arjan Lejour; Andrea Mervar; Gerard Verweij
  28. Benefit-Entitlement Effects and the Duration of Unemployment : An Ex-ante Evaluation of Recent Labour Market Reforms in Germany By Hendrik Schmitz; Viktor Steiner
  29. What Determines the Demand for Occupational Pensions in Germany? By Kathrin Dummann
  30. Rising Wage Inequality in Germany By Johannes Gernandt; Friedhelm Pfeiffer
  31. Intergenerational Transmission of Educational Attainment in Germany - the Last Five Decades By Guido Heineck; Regina T. Riphahn
  32. How do Very Open Economies Adjust to Large Immigration Flows? Recent Evidence from Spanish Regions By Libertad González Luna; Francesc Ortega
  33. Segregation, entrepreneurship and work values: the case of France By Claudia Senik; Thierry Verdier
  34. Enhancing the Benefits of Financial Liberalisation in Belgium By Stefan Ide; Jens Høj; Patrick Lenain
  35. Wealth and Asset Holdings of Immigrants in Germany By Mathias Sinning
  36. Economic Gains from Publicly Provided Education in Germany By Joachim R. Frick; Markus M. Grabka; Olaf Groh-Samberg
  37. Improving Incentives in Tertiary Education in Belgium By Jens Høj
  38. Estimating Iceland's Real Equilibrium Exchange Rate By Robert Tchaidze

  1. By: António Afonso (Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Davide Furceri (University of Illinois at Chicago, Department of Economics (M/C 144), University of Illinois at Chicago, 601 S. Morgan Street, Chicago, 60607, Illinois, USA.)
    Abstract: In this paper we provide a positive exercise on past business-cycle correlations and risk sharing in the European Union, and on the ability of insurance mechanisms and fiscal policies to smooth income fluctuations. The results suggest in particular that while some of the new Member States have well synchronized business cycles, for some of the other countries, business cycles are not yet well synchronized with the euro area’s business cycle, and risk-sharing mechanisms may not provide enough insurance against shocks. JEL Classification: E32, E42, F41, F42.
    Keywords: EU, optimum currency areas, business cycle synchronization, insurance mechanisms.
    Date: 2007–12
  2. By: Artis, Michael J; Hoffmann, Mathias
    Abstract: This paper provides further evidence on the recent increase in international consumption risk sharing. We show that this increase is more pronounced among EU and EMU countries than among non-E(M)U industrialised countries. We also show that the patterns of international but not intra-European risk sharing have started to diverge from what is found at the level of the OECD as a whole. During the 1990s, capital income flows have started to play a relatively more important role between European countries, whereas the increase in international risk sharing among the OECD as a whole is almost exclusively driven by better consumption smoothing through the accumulation or decumulation of foreign assets. This EMU effect on the pattern of risk sharing survives once we control for differences in international portfolio holdings: while we find that countries with higher equity cross-holdings also tend to share more risk through capital income flows there remains an independent EMU-effect on the way in which risk is shared. While it is too early to evaluate these findings conclusively, we discuss some possible interpretations and their implications for economic policy.
    Keywords: Capital flows; Consumption Risk Sharing; EMU; Financial integration; Home Bias
    JEL: C23 E21 F36
    Date: 2007–12
  3. By: Simone Bertoli; Francesco Farina
    Abstract: The interest around the functional distribution has gained a new momentum since the late 1980s with new theoretical advances of Neo Classical economics and with the contemporary large swing in favour of capital incomes that characterized most European countries. This paper revises the theoretical literature on the interplay between factor shares and economic growth, and it describes the competing evidence around the determinants of the large and enduring fall in the labour share experienced in Europe. The literature has produced a shared consensus on the determinants of the wage push in the 1970s and on the decline of the labour share in the 1980s, but there is still a unsettled debate on the reasons for the enduring decline over the 1990s. The paper also focuses on the possible impact of this significant change in the functional distribution of income on the interpersonal income inequality, evidencing the role in this respect of labour market and welfare institutions.
    Keywords: factor shares, income inequality, welfare system.
    JEL: D33 E01 E25 J30 O33
    Date: 2007–09
  4. By: Wilko Bolt; David Humphrey
    Abstract: The goal of SEPA (Single Euro Payments Area) is to facilitate the emergence of a competitive, intra-European market by making cross-border payments as easy as domestic transactions. With crossborder inter-operability for electronic payments, card transactions will increasingly replace cash and checks for all types of payments. Using different methods, the authors estimate card and other payment network scale economies for Europe. These indicate substantial cost efficiency gains if processing is consolidated across borders rather than "piggybacked" onto existing national operations. Cost reductions likely to induce greater replacement of small value cash transactions are also illustrated.
    Date: 2007
  5. By: Juan Angel García (Capital Markets and Financial Structure Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Andrés Manzanares (Risk Management Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Using data from the ECB's Survey of Professional Forecasters, we investigate the reporting practices of survey participants by comparing their point predictions and the mean/median/mode of their probability forecasts. We find that the individual point predictions, on average, tend to be biased towards favourable outcomes: they suggest too high growth and too low inflation rates. Most importantly, for each survey round, the aggregate survey results based on the average of the individual point predictions are also biased. These findings cast doubt on combined survey measures that average individual point predictions. Survey results based on probability forecasts are more reliable. JEL Classification: C42, E31, E47.
    Keywords: Point estimates, subjective probability distributions, Survey of Professional Forecasters (SPF), survey methods.
    Date: 2007–12
  6. By: Janko Gorter; Jan Jacobs; Jakob de Haan
    Abstract: We estimate Taylor rules for the euro area using Consensus expectations for inflation and output growth and we compare these estimates with more conventional specifications in which actual outcomes are used. According to the model with Consensus data, the ECB takes expected inflation and expected output growth into account in setting interest rates, while in the more conventional model specification the coefficient of inflation is not significantly different from zero. Only when using survey data we find that the ECB's policy has been stabilizing. Finally, using a framework suggested by English et al. (2003), we find support for both policy inertia and serially correlated errors in ECB Taylor rules.
    Keywords: Taylor rule; ECB; real-time data; policy inertia; serial correlation
    JEL: C22 E52
    Date: 2007–12
  7. By: Daniela Russo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Giacomo Caviglia (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Chryssa Papathanassiou (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Simonetta Rosati (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper is analysing the current national and international regulatory regimes relevant for European banks, CSDs and ICSDs, and is comparing them with the requirements in order to answer the following questions - Is there any overlap between the provisions of the CPSS-IOSCO Recommendations and the existing international and national requirements to which European SSSs and banks are subject? Are current provisions equivalent or more restrictive (“super-equivalent”) for banks and CSDs? In what respect? Does the overlap between the CPSS-IOSCO Recommendations and existing regulation result in double requirements?.
    Date: 2007–12
  8. By: Georg Zachmann; Christian von Hirschhausen
    Abstract: This paper applies the literature on asymmetric price transmission to the emerging commodity market for EU emissions allowances (EUA). We utilize an error correction model and an autoregressive distributed lag model to measure the relationship between CO2 price changes and the development of wholesale electricity prices. Using data from the German market for electricity and EUAs, we find that the rising prices of EUAs have a stronger impact on wholesale electricity prices than falling prices -- the first empirical evidence of asymmetric cost pass-through for these new allowances.
    Date: 2007–09
  9. By: Götz Zeddies
    Abstract: The last decades were characterized by large increases in world trade, not only in absolute terms, but also in relation to world GDP. This was in large parts caused by increasing exchanges of parts and components between countries as a consequence of international fragmentation of production. Apparently, greater competition especially from the Newly Industrializing and Post-Communist Economies prompted firms in ‘high-wage’ countries to exploit international factor price differences in order to increase their international competitiveness. However, theory predicts that, beside factor price differences, vertical disintegration of production should be driven by a multitude of additional factors. Against this background, the present paper reveals empirical evidence on parts and components trade as an indicator for international fragmentation of production in the European Union. On the basis of a panel data approach, the main explanatory factors for international fragmentation of production are determined. The results show that, although their influence can not be neglected, factor price differences are only one out of many causes for shifting production to or sourcing components from foreign countries.
    Keywords: Economic Integration, International Fragmentation of Production
    JEL: F14 F23 L23
    Date: 2007–12
  10. By: Stéphane Carcillo; Victoria Gunnarsson; Marijn Verhoeven
    Abstract: Enhancing the efficiency of education and health spending is a key policy challenge in G7 countries. The paper assesses this efficiency and seeks to establish a link between differences in efficiency across countries and policy and institutional factors. The findings suggest that reforms aimed at increasing efficiency need to take into account the nature and causes of inefficiencies. Inefficiencies in G7 countries mostly reflect lack of cost effectiveness in acquiring real resources, such as teachers and pharmaceuticals. We also find that high wage spending is associated with lower efficiency. In addition, lowering student-teacher ratios is associated with reduced efficiency in the education sector, while immunizations and doctors' consultations coincide with higher efficiency in the health sector. Greater autonomy for schools seems to raise efficiency in secondary education.
    Keywords: Education , Health care , Wages , Public sector , Government expenditures ,
    Date: 2007–11–21
  11. By: Chiuri Maria Concetta (University of Bari); Del Boca Daniela (University of Turin)
    Abstract: While several social, economic and financial indicators point to a growing convergence among European countries, striking differences still emerge in the timing of leaving home for adult children. In Southern countries (as Spain, Italy or Portugal) in 2001 more than 70 percent of young adults between 18 and 34 years of age live with their parents, whereas the corresponding number for Northern countries (like Denmark or the UK) is well below 40 percent. Existing literature highlights several factors explaining the different patterns in Europe: preferences and culture, labor market conditions, housing market as well as differences across the welfare states. In our work, we consider living arrangements of people 18-34 years old from 14 European countries (ECHP). We augment the informational content with indicators of labor, housing and marriage markets characteristics as well as proxy for the welfare states and culture. We investigate how they are intertwined with gender differences.
    Date: 2007–12
  12. By: Emilie Alberola; Julien Pierre Chevallier; Benoît Chèze
    Abstract: This article aims at characterizing the daily price fundamentals of European Union Allowances (EUAs) traded since 2005 as part of the Emissions Trading Scheme (ETS). First, the presence of two structural changes on April, 2006 following the disclosure of 2005 verified emissions and on October, 2006 following the European Commission announcement of stricter Phase II allocation allow to isolate distinct fundamentals evolving overtime. The results extend previous literature by showing that spot prices react not only to other energy markets and temperatures, but also to economic activity within the main sectors covered by the EU ETS such as proxied by sectoral production indices. Besides, the sub-period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes.
    Keywords: Carbon Emissions Trading, Market Price Fundamentals, EU ETS
    JEL: Q40 Q48 Q54
    Date: 2007
  13. By: Sergio de Nardis (ISAE - Institute for Studies and Economic Analyses); Roberta De Santis (ISAE - Institute for Studies and Economic Analyses); Claudio Vicarelli (ISAE - Institute for Studies and Economic Analyses)
    Abstract: In this paper we study the effect of the single currency across industries for Euro Area members. This analysis may help to shed light on the main factors influencing the euro effect on trade flows. We intend to verify whether these factors are specific to individual sectors and/or countries or common to the entire euro area We use a dynamic specification of an augmented gravity equation. Following the most recent econometric literature, we apply a “System GMM” dynamic panel data estimator (Blundell and Bond, 1998) to avoid inconsistency and biases in the estimates, and introduce controls for heterogeneity . Our preliminary results indicate some heterogeneity at country level. Despite statistically pro-trade effects in the majority of the EMU members, at sectoral level there are some countries in which the impact of the euro has been negative. The pro trade effects are mainly concentrated in scale intensive industries. Industrial specialization and location of these industries, together with other factors (i.e. differences in factor endowments, product regulations across countries), may have determined “the winners and the losers” in the monetary integration process. These preliminary findings are in line with those of the few other studies on this issue. In particular, this recent literature seems consistent with Baldwin’s (2006) “new good” hypothesis. However, in our estimates the magnitude of these effects are lower, probably because of our empirical strategy. Moreover, the sector/country analysis points out that other specific factors have been in place in shaping differently the euro effect on trade.
    Keywords: International Trade, Currency Unions, Gravity models, Dynamic Panel Data Models, Bludell-Bond Estimates
    JEL: F14 F15 F4 F33 C33
    Date: 2007–12
  14. By: Bernd Genser; Andreas Reutter
    Abstract: The paper summarizes the arguments in favor of a shift from comprehensive to dual income taxation and complements the discussion by an overview on tax reforms which reveal the characteristic features of a dual income tax system. The scope of our analysis is not restricted to the Nordic countries, we also include other European countries, whose tax reform steps can be regarded as a move toward a dual income tax. We focus on problems of running a final withholding income tax regime under individual and household taxation including the most recent dual income tax reforms in the Nordic countries, but nevertheless argue that it may be worthwhile for the Commission to consider dual income taxation as a blueprint for income tax coordination in the EU.
    Keywords: Dual Income Taxation, tax reforms. imcome tax, nordic countries tax reform
    Date: 2007–06–01
  15. By: Rui Cunha Marques (CESUR, DECIVIL-IST, Universidade Técnica de Lisboa); Ana Oliveira-Brochado (EDGE – Faculdade de Economia do Porto, CESUR, DECIVIL-IST, Universidade Técnica de Lisboa)
    Abstract: This paper provides an overview of how the major airports are regulated in Europe. In order to eliminate the potential of airports to exercise market power and protect the public interest, it has become increasingly necessary to set a common regulatory framework. We intend to discuss the need of a single regulator in Europe to monitor or establish the quality of service and the charges practiced by the airports, to ensure cost-relatedness, transparency and non-discrimination. The existing regulatory approaches regarding aeronautical charges and their economic implications are also analyzed. We propose the creation of a European Observatory for this sector.
    Keywords: airports, economic regulation, European Observatory
    JEL: L51 L52 L93
    Date: 2007–12
  16. By: William Phelan
    Abstract: This paper considers whether Ireland can unilaterally legislate contrary to European Community law, and achieve the application of that legislation in Irish courts not withstanding the European Community law doctrines of supremacy and direct effect. It argues that the scholarship on the relationship between Irish law and European Community law, together with decisions of Irish courts, indicate that Ireland could legislate contrary to European Community law by amending the European Communities Act. More broadly, for member states of the European Union which – like Ireland – derive the application of European law in the national legal order from national legislation, it is not so much the 'constitutional' claims of European Community law that prevent the member states from legislating contrary to European Community law but rather the fact that the member states persistently refrain from legislating to limit the effect of Community law in the national jurisdictions which gives European Community law its 'constitutional' character.
    Date: 2007–12–19
  17. By: Francesco Figari (ISER, University of Essex); Herwig Immervoll (OECD, ISER, University of Essex, European Centre Vienna and IZA); Horacio Levy (ISER, University of Essex); Holly Sutherland (ISER, University of Essex)
    Abstract: In spite of there being few elements of tax or cash benefit systems in developed countries that are any longer explicitly gender-biased in a discriminatory sense, it is well recognised that they have significant gender effects. To the extent that women earn less than men on average under tax-benefit systems that are progressive, there is some redistribution from men to women overall. However, an aggregate perspective is insufficient for understanding how earning opportunities and public policies affect living arrangements at the family level in general and the circumstances of men and women in particular. Arguably, it is within the household that a gendered division of labour is most relevant. It is difficult to observe how income and other resources get allocated within households. We can, however, observe the incomes brought into the household and to what extent taxes and benefits mitigate (or indeed exacerbate) any inequality of income between men and women. We explore the effects of tax and benefit systems on differences in income and in incentives to earn income between men and women within couples in a selection of the member countries of the European Union (EU) using EUROMOD, the EU tax-benefit microsimulation model. This comparative perspective allows us to establish the relative effects of different policy regimes, given the underlying characteristics of each national population, using a consistent approach and set of incidence assumptions across countries.
    Keywords: within-household inequality, tax-benefit systems, Europe, gender
    JEL: D31 H31
    Date: 2007–12
  18. By: Alessandro STERLACCHINI (Universita' Politecnica delle Marche, Dipartimento di Management ed Organizzazione Aziendale); Francesco SCHETTINO (Universit… Politecnica delle Marche)
    Abstract: This paper presents the results of a survey on a regional sample of Italian inventors who, over the period 1991-2005, have submitted patent applications to the European Patent Office. The inventors' features and patenting activities are mainly examined according to the size of the firms they are working in. Compared to those coming from medium-large companies, `small inventors' (encompassing employees or owners of small firms and independent inventors) have a lower educational level, ascribe less importance to codified sources of knowledge and are less productive in terms of patent applications. However, by using forward citations and other indicators, it emerges that there is no difference in the average quality of patented inventions of the two groups. Nevertheless, one third of small inventors evaluates negatively its patenting experience, while it is true for only a tiny fraction of larger patentees. On the basis of further interviews, we find that the inventors' assessments are particularly influenced by their different capabilities to enforce intellectual property rights.
    Keywords: European patents, Firm size, Intellectual property rights, Inventors, Patent quality
    JEL: L20 O31 O34
    Date: 2007–12
  19. By: Georges Menahem (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII, Institut Recherche Documentation en Economie de la Santé - CNAM TS)
    Abstract: With a view to better assessment of the roles played by social security and social policy in determining well-being, this article introduces the ”decommodified security ratio“ (DSR), an instrument for evaluating an important duty of the social State, namely to maintain and improve people’s economic security. To that end we describe the conventions for its use, analyse its main<br />components in 20 European countries in 2002 and simulate the changes in it produced by ten variations in those components. From an analysis of the sensitivities of economic security we then demonstrate three different rationales.
    Keywords: security; uncommodification; indicator
    Date: 2007–10
  20. By: Romina Boarini; Hubert Strauss
    Abstract: This study provides estimates of the private Internal Rates of Return (IRR) to tertiary education for women and men in 21 OECD countries, for the years between 1991 and 2005. IRR are computed by estimating labour market premia on cross-country comparable individual-level data. Labour market premia are then adjusted for fiscal factors and education cost. Returns to an additional year of tertiary education are, on average, above 8% and vary in a range from 4 to 15% in the countries and in the period under study. IRR are relatively homogenous across gender. Overall, a slightly increasing trend is observed over time. The study discusses various policy levers for shaping individual incentives to invest in tertiary education and provides some illustrative quantification of the impact of policy changes on those incentives. <P>Les taux de rendement privés de l’éducation supérieure : nouvelles estimations pour 21 pays de l’OCDE <BR>Cette étude fournit des estimations des taux de rendement privés de l'éducation supérieure, pour les hommes ainsi que pour les femmes, dans 21 pays de l'OCDE et pour les années comprises entre 1991 et 2005. Les rendements sont calculés en estimant les primes sur le marché du travail à partir de données individuelles comparables entre les pays. Ces primes sont ensuite corrigées par des facteurs fiscaux et par les coûts de l'éducation. Les rendements d'une année supplémentaire d'enseignement supérieur sont en moyenne supérieurs à 8%, et varient dans un intervalle de 4% à 15% entre pays et pour la période considérée. Les rendements sont à peu près les mêmes pour les hommes et pour les femmes. Dans l'ensemble, une légère tendance à la hausse apparaît dans la période d'observation. L'étude examine l’influence des différentes politiques sur les incitations individuelles à investir dans l'éducation supérieure et propose des estimations de l'impact des réformes sur ces incitations.
    Keywords: Investment in tertiary education, Returns to education, Rendements de l’éducation
    JEL: I21 I22 I28 J24
    Date: 2007–12–20
  21. By: Nicholas Economides (Stern School of Business, New York University); Ioannis Lianos (University College London, Faculty of Laws)
    Abstract: We analyze and contrast the US and EU antitrust standards on mixed bundling and tying. We apply our analysis to the US and EU cases against Microsoft on the issue of tying new products (Internet Explorer in the US, and Windows Media Player in the EU) with Windows as well as to cases brought in Europe and in the United States on bundling discounts. We conclude that there are differences between the EC and US antitrust law on the choice of the relevant analogy for bundled rebates (predatory price standard or foreclosure standard) and the implementation of the distinct product and coercion test for tying practices. The second important difference between the two jurisdictions concerns the interpretation of the requirement of anticompetitive foreclosure. It seems to us that in Europe, consumer detriment is found easily and it is not always a requirement for the application of Article 82, or at least that the standard of proof of a consumer detriment for tying cases is lower than in the US.
    Keywords: tying, bundling, foreclosure, requirement contracts, monopolization, Microsoft, predatory pricing
    JEL: K12 L12 L13 L41 L42 L63
    Date: 2007–12
  22. By: Francesco Pastore (Seconda Università di Napoli and IZA)
    Abstract: The EU experience with youth unemployment has changed over recent years with the launch and re-launch of the Lisbon Strategy and the Bologna process. A dramatic shift has taken place from the 1990s emphasis on labour market flexibility as a tool to abate youth long term unemployment to the more recent stress on the importance of increasing the human capital endowment via a deep reform of education and training systems. This shift is also taking place worldwide, since, as recent studies show, labour market flexibility can increase employability when the human capital level of young people is sufficiently high. To reduce the "experience gap" between young and adult people, the education systems should become of a higher quality, more inclusive to reduce the dropout rate, homogeneous to other EU countries to favour labour mobility, flexible to allow young people to better find the best match, and contemplate the duality principle, by providing training together with education, to favour smoother school-to-work transitions. Apprenticeships schemes, fiscal incentives to hire the youth unemployed as well as on-the-job training schemes should help reach objectives that cannot be guaranteed simply via an increase in labour market flexibility.
    Keywords: Lisbon strategy, employment policy, young people, economic transition
    JEL: I2 J24 J68 P3
    Date: 2007–12
  23. By: Rudolfs Bems; Philip Schellekens
    Abstract: This paper singles out the key short-term risks and medium-term challenges related to finance and convergence in emerging Europe. With the help of a general equilibrium theoretical framework, the paper identifies pragmatic directions for policymakers. While the "speed limits" to capital inflows may be hard to determine, the costs of breaking them are likely substantial. To ensure "safe driving," policymakers ought to build buffers and reduce vulnerabilities. Equally important, yet often overlooked, is the need to prepare for "the curve ahead"-the reversal of external current account imbalances. To avoid painful adjustments, flexible factor markets and strong financial systems will be more important than ever.
    Keywords: Current account balances , Financial systems , Capital flows , Emerging markets , Financial risk ,
    Date: 2007–11–12
  24. By: Jan Rutkowski (World Bank and IZA)
    Abstract: Labor markets in the transition economies of Central and Eastern Europe underwent a dramatic transformation. Notably, this transformation took place within just a few years. Until the mid-2000s job opportunities were scarce and unemployment was high. But since then labor demand has picked up and unemployment has dropped substantially. In contrast to the earlier period of weak labor demand, it is now the supply side of the labor market that constrains job creation. These spectacular improvements can hardly be attributed to the greater labor market flexibility or to the more efficient matching of workers with jobs because no major reforms to labor market institutions were recently implemented in the region. Instead, the main cause was a strong increase in labor demand, as evidenced by the increase in the job vacancy rates and real wages. The surge in labor demand is likely to reflect successful enterprise restructuring supported by the improvements in the investment climate and access to global markets associated with the EU accession. For a long time enterprises in transition economies were improving competitiveness by shedding of redundant labor. Now they use productivity gains to invest, expand output and hire more workers. However, the emerging skills shortages may constrain firm growth. Thus the transition economies face a challenge of mobilizing effective labor supply. This requires improving labor supply incentives and investing in education. This paper documents the recent changes in labor market conditions in the transition economies, suggests tentative explanations, and finally suggests policies to address the emerging challenges.
    Keywords: transition economies, labor market, unemployment, skill shortages
    JEL: J21 J23 J63 J64 P23 O52
    Date: 2007–12
  25. By: Sergei Guriev (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR)); Ekaterina Zhuravskaya (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR))
    Abstract: Despite the strong growth performance in transition countries in the last decade, residents of transition countries report abnormally low levels of life satisfaction. Using data from multiple sources including a recent survey in 28 post-communist countries, we study various explanations of this phenomenon. We find that deterioration in public goods provision, an increase in macroeconomic volatility, and a mismatch of human capital explain a great deal of the difference in life satisfaction between transition countries and other countries with similar income. The rest of the gap is explained by the difference in the quality of the samples. As in other countries, life satisfaction in transition is strongly related to income; but due to a higher non-response of highincome individuals in transition countries, the effect of GDP growth on the increase in life satisfaction estimated using survey data is biased downwards. The evidence suggests that if the region keeps growing at current rates, the life satisfaction in transition countries will catch up with the “normal” level in the near future.
    Date: 2007–12
  26. By: Guido Heineck (University of Erlangen-Nuremberg. Department of Statistics and Empirical Economics)
    Abstract: Religion as a determinant of individuals’ behavior has only recently found its way in the economic literature. In this analysis, four waves of ISSP-data covering the time between 1991 and 2002 are used to examine the relationship between religion and attitudes towards working mothers across (West and East) Germany, Ireland, and the UK. Further, using sub-samples of married individuals, the study addresses whether these attitudes along with religious involvement are related to wives’ labor market participation. Results suggest that religious affiliation and participation correlate positively with traditional attitudes and that those attitudes are negatively associated with female labor participation. Beyond that, religion has only modest additional explaining power.
    Keywords: Attitudes, religion, female labor participation
    JEL: J16 J22 Z12
    Date: 2007–12–19
  27. By: Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Andrea Mervar (The Institute of Economics, Zagreb); Gerard Verweij (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We explore the economic implications of Croatia's possible accession to the European Union. We focus on two main changes associated with the EU-membership: accession to the internal European Market and institutional reforms in Croatia triggered by the EU-membership. GDP per capita in Croatia is estimated to rise by about 1.1 percent as a result of accession to the internal market. In particular the textile and wearing apparel sectors expand. If Croatia succeeds in reforming its domestic institutions in response to the EU-membership, income levels in Croatia could increase even more. In particular, tentative estimates suggest that GDP per capita in Croatia could even rise by additional 8 percent. Overall, the macroeconomic implications for the existing EU countries are negligible.
    Keywords: regional economic integration, general equilibrium model, gravity equations, institutional reform, Croatia
    JEL: F13 F15
    Date: 2007–12
  28. By: Hendrik Schmitz; Viktor Steiner
    Abstract: We analyse benefit-entitlement effects and the likely impact of the recent reform of the unemployment compensation system on the duration of unemployment in Germany on the basis of a flexible discrete-time hazard rate model estimated on pre-reform data from the German Socioeconomic Panel. We find (i) relatively strong benefit-entitlement effects for the unemployed who are eligible to means-tested unemployment assistance after the exhaustion of unemployment benefit, but not for those without such entitlement; (ii) that benefit-entitlement effects on hazard rates are not monotonic in time to benefit-exhaustion but rather occur around the month of benefit-exhaustion, and (iii) relatively small marginal effects of the amount of unemployment compensation on the duration of unemployment. Simulation results show that the recent labour market reform is unlikely to have a major impact on the average duration of unemployment in the population as a whole, but will significantly reduce the level of long-term unemployment among older workers.
    Keywords: unemployment duration, unemployment insurance, benefit-entitlement effects, German labour market reforms, ex-ante evaluation, hazard rate model
    JEL: J64 J65 H31
    Date: 2007
  29. By: Kathrin Dummann
    Abstract: Demographic change causes an undersupply of financial old age benefits within the statutory pay-as-you-go pension system in Germany. Therefore, the provision of occupational as well as private pensions has to be enhanced. However, there seems to be an undersupply of occupational pension provision particularly in small and medium sized enterprises (SMEs). Using survey data of the German Socio-Economic Panel (GSOEP) and the German SAVE survey, the present paper studies econometrically the determinants of occupational pension provision in Germany. It shows that occupational pensions depend not only on supply-side factors such as firm size and industry, but also on demand-side factors such as individual socio-demographic attributes and people’s savings motives.
    Keywords: Occupational Pensions, Retirement Provision, Demographic Change, SMEs
    JEL: C25 G23 J14
    Date: 2007
  30. By: Johannes Gernandt; Friedhelm Pfeiffer
    Abstract: Based on samples from the German Socio-Economic Panel (GSOEP) 1984 to 2004, this paper investigates the evolution of wages and wage inequality in Germany. Between 1984 and 1994 wages for prime age dependent male workers increased on average by 23 percent and the wage distribution in West Germany was fairly stable. Between 1994 and 2004 average wages rose by about 8 percent in West Germany and 28 percent in East Germany. In this period wage inequality for prime age dependent males, measured by the ratio of the ninetieth to tenth percentile of the wage distribution, increased from 2.1 to 2.5 in West Germany and from 2.3 to 2.9 in East Germany. In West Germany rising wage inequality has occurred mainly in the lower part of the wage distribution, whereas in East Germany wage inequality predominantly rose in the upper part of the wage distribution. In West Germany the group of workers with low tenure experienced higher increases in wage inequality.
    Keywords: Tenure, skill composition, wage inequality, wage rigidity
    JEL: J21 J24 J31
    Date: 2007
  31. By: Guido Heineck; Regina T. Riphahn
    Abstract: Over the last decades the German education system underwent numerous reforms in order to improve "equality of opportunity", i.e. to guarantee all pupils equal access to higher education. At the same time internationally comparative evidence yields that Germany features particularly low intergenerational mobility with respect to educational attainment. This study investigates the development in intergenerational education mobility in Germany for the birth cohorts 1929 through 1978 and tests whether the impact of parental background on child educational outcomes changed over time. In spite of massive public policy interventions and education reforms our results yield no significant reduction in the role of parental background for child outcomes over the last decades.
    Keywords: education transmission, intergenerational mobility, schooling, human capital transmission, Lohnungleichheit, Einkommensgleichung, Quantilsregression
    JEL: I21 I28 J11
    Date: 2007
  32. By: Libertad González Luna; Francesc Ortega
    Abstract: In recent years, Spain has received unprecedented immigration flows. Between 2001 and 2006 the fraction of the population born abroad more than doubled, increasing from 4.8% to 10.8%. For Spanish provinces with above-median inflows (relative to population), immigration increased by 24% the number of high school dropouts while only increasing college graduates by 11%. We study different channels by which regional labor markets have absorbed the large increase in relative supply of low educated workers. We identify the exogenous supply shock using historical immigrant settlement patterns by country of origin. Using data from the Labor Force Survey and the decennial Census, we find a large expansion of employment in high immigration regions. Disaggregating by industry, the absorption operated through large increases in the share of low-educated workers, compared to the same industry in low-immigration regions. We do not find changes in sectoral specialization. Overall, and perhaps surprisingly, the pattern of absorption is very similar to the one found in the US.
    Keywords: Immigration, Open Economies, Rybcszynski, Instrumental Variables
    JEL: J2 F1 O3
    Date: 2007–11
  33. By: Claudia Senik; Thierry Verdier
    Abstract: This paper studies the interaction between labor market integration, the evolution of "work values" and entrepreneurial capital inside minority communities. A simple model of labor market segmentation with ethnic capital and endogenous transmission of cultural values inside minority groups is presented. It emphasizes the role of entrepreneurial capital as an important driver of labor market integration and as a promoter of meritocratic work values inside the community. Using a new French survey rich in attitudinal variables, it then proposes an empirical illustration, focusing on the dissimilarity between the labor market integration of South European versus North African second generation immigrants in France. It shows that the contrasted economic and cultural integration of these minorities can be explained away by their different levels of entrepreneurial capital.
    Date: 2007
  34. By: Stefan Ide; Jens Høj; Patrick Lenain
    Abstract: The Belgian financial landscape has been transformed over the past two decades and now consists of a relatively large, well-functioning and internationally integrated financial sector contributing directly and indirectly, through its intermediary function, to long-term economic growth. One of the financial system’s key characteristics is the concentration of activity among a small number of financial conglomerates that offer a combination of banking and insurance services. Although this mix of activities may contribute to financial stability, it has led to a widespread commercial practice of crossselling, possibly dampening competitive pressures. Competition may also be hindered by regulatory policies in the markets of mortgage loans and consumer credit; although these policies aim at protecting consumers against the risk of over-indebtedness, they risk having the unintended consequence of increasing entry costs for new providers, thus hindering competition and innovation and hurting consumer interests. Besides regulatory policy, tax policy has also been used to shape the development of the financial system. Tax credits are granted to influence investment and borrowing decisions, notably to stimulate home ownership, encourage saving and stimulate private pension accounts. International experience suggests that such tax expenditures, while influencing the allocation of saving, have no obvious impact on the overall level of saving. However they result in significant tax expenditure and necessitate higher tax rates elsewhere. Reforms recommended in this paper would help to make a well-functioning system perform even better. <P>Renforcer les avantages de la libéralisation financière en Belgique <BR>Le paysage financier belge s’est transformé au cours des deux dernières décennies et se caractérise aujourd’hui par un secteur financier relativement important, fonctionnant bien et intégré au niveau international, qui contribue directement et indirectement, par sa fonction d’intermédiation, à la croissance économique à long terme. L’une des principales caractéristiques du système financier est la concentration de l’activité au sein d’un petit nombre de conglomérats financiers qui offrent simultanément des services bancaires et des services d’assurance. Bien que cette combinaison d’activités puisse contribuer à la stabilité financière, elle a conduit à une pratique commerciale très répandue, la vente croisée, qui peut atténuer les pressions concurrentielles. La concurrence est peut-être aussi entravée par les dispositions réglementaires concernant les marchés du crédit hypothécaire et du crédit à la consommation ; bien que ces dispositions aient pour objet de protéger les consommateurs contre le risque de surendettement, elles peuvent avoir pour conséquence involontaire d’accroître les coûts d’entrée pour les nouveaux prestataires, et de limiter ainsi la concurrence et l’innovation tout en portant atteinte aux intérêts des consommateurs. Outre la politique réglementaire, la politique fiscale a été utilisée pour façonner le développement du système financier. Des crédits d’impôt sont accordés pour influencer les décisions d’investissement et d’emprunt, en particulier afin de stimuler l’accession à la propriété du logement, encourager l’épargne et promouvoir la constitution de comptes retraite privés. L’expérience d’autres pays donne à penser que ces dépenses fiscales, si elles influent sur l’affectation de l’épargne, n’ont pas d’impact manifeste sur son niveau global. Or, elles se traduisent par d’importantes dépenses fiscales et obligent à relever les taux d’imposition dans d’autres domaines. Les réformes recommandées dans le présent article contribueraient à améliorer encore le fonctionnement du système, qui est déjà satisfaisant.
    Keywords: competition
    JEL: G14 G18 G21
    Date: 2007–12–20
  35. By: Mathias Sinning
    Abstract: This paper examines the relative wealth position and the portfolio choices of immigrants in Germany. The empirical findings reveal significant differences in overall wealth and various wealth components between German natives and immigrants. Differences in real estate constitute the major part of different levels of net worth, indicating that disparities in home-ownership rates are responsible for the main part of the overall wealth gap. Moreover, migrants' degree of portfolio diversification is significantly lower than that of comparable natives. The results of a decomposition analysis suggest that differences in wealth and asset holdings may be explained by disparity in educational attainment to a sizable extent, while the effects of income differentials and differences in demographic characteristics are insignificant.
    Keywords: International migration, wealth accumulation, decomposition analysis, multiple imputation
    JEL: F22 D31
    Date: 2007
  36. By: Joachim R. Frick; Markus M. Grabka; Olaf Groh-Samberg
    Abstract: The aim of this paper is to estimate income advantages arising from publicly provided education and to analyse their impact on the income distribution in Germany. Using representative micro-data from the SOEP and considering regional and education-specific variation, from a cross-sectional perspective the overall result is the expected levelling effect. When estimating the effects of accumulated educational transfers over the life course within a regression framework, however, and controlling for selectivity of households with children as potential beneficiaries of educational transfers, we find evidence that social inequalities are increasing from an intergenerational perspective, reinforced in particular by public transfers for non-compulsory education, thus negating any social equalisation effects achieved within the compulsory education framework.
    Keywords: Education, Public Transfers, Income Distribution, Economic Wellbeing, SOEP
    Date: 2007
  37. By: Jens Høj
    Abstract: The tertiary education system has been transformed from an elite-oriented system to a system providing tertiary education to a much larger share of each new generation. This re-orientation has contributed to raising education attainment in Belgium. However, in many respects the organisation of the tertiary education systems has not been changed fundamentally and economic incentives are only to a minor extent in place for securing the supply and quality of tertiary education. The system has come under strain, as revealed in the high failure rate among first-year students and the high incidence of subject change. There is thus a need for the system to adapt to be able to continue to support the improvement in educational attainment. <P>Améliorer les systèmes d’incitation dans l’enseignement supérieur en Belgique <BR>Auparavant élitiste, l’enseignement supérieur a été transformé en un système devant permettre à une part plus importante de chaque nouvelle génération de faire des études supérieures. Cette réorientation a contribué à élever le niveau de formation en Belgique. Cela étant, à bien des égards, l’organisation du système d’enseignement supérieur n’a pas été fondamentalement modifiée et les conditions économiques permettant d’assurer une offre et une qualité d’enseignement suffisantes sont loin d’être réunies. Le système est en proie à des difficultés, comme en témoigne le taux d’échec élevé des étudiants de première année et les nombreux changements de filière. Il doit donc faire l’objet d’aménagements si l’on veut qu’il puisse continuer à améliorer le niveau de formation.
    Keywords: enseignement supérieur, higher education
    JEL: F21 F22 F23
    Date: 2007–12–20
  38. By: Robert Tchaidze
    Abstract: Given recent developments in Iceland, this paper evaluates its real exchange rate disequilibrium. It discusses three approaches to estimating the equilibrium values and suggests that the adjustment needed to bring the real exchange rate in line with fundamentals is in the range of 15-25 percent, although timing and manner of this adjustment is unclear.
    Keywords: Working Paper , Iceland ,
    Date: 2007–12–14

This nep-eec issue is ©2008 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.