nep-eec New Economics Papers
on European Economics
Issue of 2008‒03‒15
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The Role of Labor Market Changes in the Slowdown of European Productivity Growth By Ian Dew-Becker; Robert J. Gordon
  2. Estimation of monetary policy preferences in a forward-looking model : a Bayesian approach By Pelin Ilbas
  3. Does it Matter How to Measure Aggregates? The Case of Monetary Transmission Mechanisms in the Euro Area By Andreas Beyer; Katarina Juselius
  4. Immigrant Selection in the OECD By Michéle V.K. Belot; Timothy J. Hatton
  5. Export-Oriented FDI, the Euro, and EU Enlargement By Hisham Foad
  6. Social Capital, Innovation and Growth: Evidence from Europe By Akçomak, I. Semih; ter Weel, Bas
  7. Growing export performance of transition economies: EU market access versus supply capacity factors By Joze P. Damijan; Matija Rojec; Maja Ferjancic
  8. Civic Participation of Immigrants: Culture Transmission and Assimilation By Aleksynska, Mariya
  9. Labour market characteristics and the burden of ageing : North America versus Europe By Luca, MARCHIORI
  10. 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
  11. Do labour market institutions matter? Micro-level wage effects of international outsourcing in three European countries By Ingo Geishecker; Holger Görg; Jakob Roland Munch
  12. Growth Resurgence, Productivity Catching-up and Labour Demand in CEECs By Peter Havlik; Sebastian Leitner; Robert Stehrer
  13. The Ins and Outs of European Unemployment By Petrongolo, Barbara; Pissarides, Christopher A.
  14. Regional Unemployment and Human Capital in Transition Economies By Stepan Jurajda; Katherine Terrell
  15. Chinese Competition and Skill-Upgrading in European Textiles: Firm-level Evidence By Ph. Monfort; Hylke Vandenbussche; E. Forlani
  16. Immigrants’ Responsiveness to Labor Market Conditions and Their Impact on Regional Employment Disparities: Evidence from Spain By Catalina Amuedo-Dorantes; Sara de la Rica

  1. By: Ian Dew-Becker; Robert J. Gordon
    Abstract: Throughout the postwar era until 1995 labor productivity grew faster in Europe than in the United States. Since 1995, productivity growth in the EU-15 has slowed while that in the United States has accelerated. But Europe's productivity growth slowdown was largely offset by faster growth in employment per capita, leaving little difference in growth of output per capita between the EU and US going back to 1980. This paper is about the strong negative tradeoff between productivity and employment growth within Europe. We document this tradeoff in the raw data, in regressions that control for the two-way causation between productivity and employment growth, and we show that there is a robust negative correlation between productivity and employment growth across countries and time. Our primary explanatory variables to explain both the revival of EU employment growth and the slowdown in productivity growth include six policy and institutional variables. We find that several of these variables have significant negative effects on employment per capita, both before and after 1995. We also find a significant time effect, that the increase in European employment per capita increased after 1995 for reasons that go beyond our six explanatory variables, and we link this time effect to a secular increase in the labor-force participation of women, particularly in southern European countries. We conclude by suggesting that evaluations of alternative policy reforms in Europe should take into account any offsetting effects on employment and productivity by examining the ultimate impact on changes in income per capita.
    JEL: E0 E23 E24 E60 J20 J21 J23
    Date: 2008–03
  2. By: Pelin Ilbas (Center for Economic Studies, Catholic University of Leuven)
    Abstract: In this paper we adopt a Bayesian approach towards the estimation of the monetary policy preference parameters in a general equilibrium framework. We start from the model presented by Smets and Wouters (2003) for the euro area where, in the original set up, monetary policy behaviour is described by an empirical Taylor rule. We abandon this way of representing monetary policy behaviour and assume, instead, that monetary policy authorities optimize an intertemporal quadratic loss function under commitment. We consider two alternative specifications for the loss function. The first specification includes inflation, output gap and difference in the interest rate as target variables. The second loss function includes an additional wage inflation target. The weights assigned to the target variables in the loss functions, i.e. the preferences of monetary policy, are estimated jointly with the structural parameters in the model. The results imply that inflation variability remains the main concern of optimal monetary policy. In addition, interest rate smoothing and the output gap appear to be, to a lesser extent, important target variables as well. Comparing the marginal likelihood of the original Smets and Wouters (2003) model to our specification with optimal monetary policy indicates that the latter performs only slightly worse. Since we are faced with the time-inconsistency problem under commitment, we initialize our estimates by considering a presample period of 40 quarters. This allows us to approach, empirically, the timeless perspective framework.
    Keywords: optimal monetary policy, commitment, central bank preferences, euro area monetary policy
    JEL: E42 E52 E58 E61
    Date: 2008–03
  3. By: Andreas Beyer (European Central Bank); Katarina Juselius (Department of Economics, University of Copenhagen)
    Abstract: Beyer, Doornik and Hendry (2000, 2001) show analytically that three out of four aggregation methods yield problematic results when exchange rate shifts induce relative-price changes between individual countries and found the least problematic method to be the variable weight method of growth rates. This papers shows, however, that the latter is sensitive to the choice of base year when based on real GDP weights whereas not on nominal GDP weights. A comparison of aggregates calculated with different methods shows that the differences are tiny in absolute value but highly persistent. To investigate the impact on the cointegration properties in empirical modelling, the monetary model in Coenen & Vega (2001) based on fixed weights was re-estimated using flexible real and nominal GDP weights. In general, the results remained reasonably robust to the choice of aggregation method.
    Keywords: aggregation; flexible weights; Eurowide money demand; cointegration
    JEL: C32 C42 E41
    Date: 2008–03
  4. By: Michéle V.K. Belot; Timothy J. Hatton
    Abstract: The selection of immigrants by skill and education is a central issue in the analysis of immigration. Since highly educated immigrants tend to be more successful in host country labour markets and less of a fiscal cost it is important to know what determines the skill-selectivity of immigration. In this paper we examine the proportions of highly educated among migrants from around 80 source countries who were observed as immigrants in each of 29 OECD countries in 2000/1. We develop a variant of the Roy model to estimate the determinants of educational selectivity by source and destination country. We also estimate the determinants of the share of migrants from different source countries in each destination country’s immigrant stock. Two key findings emerge. One is that the effects of the skill premium, which is at the core of the Roy model, can be observed only after we take account of poverty constraints operating in source countries. The other is that cultural links and distance are often more important determinants of the proportion of high educated immigrants in different OECD countries than wage incentives or policy.
    Keywords: immigration, migrant selection, migrant skills
    JEL: F22 J24 J61
    Date: 2008–02
  5. By: Hisham Foad (Department of Economics, San Diego State University)
    Abstract: Since 1999, the UK’s share of FDI heading into Europe has declined dramatically, while the Euro-Zone’s share has increased. I argue that the timing of this divergence is not coincidental. The formation of the Euro-Zone has eliminated nominal exchange rate volatility between member-states, increasing export market access intra-union. For source countries outside of Europe, Euro-Zone countries have become more attractive destinations for export-oriented FDI, as operations within the union are insulated from currency fluctuations. As exchange rate volatility between a non-Euro country and local export markets increases, or as the market size of the euro-zone increases, more and more investment will be diverted towards Euro-Zone countries. This theory is tested in two stages using detailed data on the operations of foreign affiliates of US multinationals across seventeen European countries from 1983 – 2004. A host country’s export market access is first estimated with an augmented gravity model. This export series is then included in a dynamic panel with US to host market exchange rate volatility and a range of FDI determinants to explain inflows of FDI from the US to European countries. Potential endogeneity issues are addressed using the Arellano and Bond (1991) GMM procedure. The ability to export from a particular host country has a positive and significant effect on inflows of FDI. Additionally, unobserved features of Euro-Zone membership (beyond the elimination of currency risk) have a positive effect on inflows. A counterfactual experiment sheds light on how much FDI the UK “lost” by not adopting the euro in 1999. Re-estimating the trade and FDI relations under the assumption that the UK had adopted the euro, I estimate that the UK has lost approximately $33 billion (2% of GDP) worth of FDI from the US. Similarly, the flight of FDI to the new EU accession countries has been slowed by these countries staying out of the Euro-Zone.
    Date: 2007–05
  6. By: Akçomak, I. Semih (Maastricht University); ter Weel, Bas (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper investigates the interplay between social capital, innovation and per capita income growth in the European Union. We model and identify innovation as an important mechanism that transforms social capital into higher income levels. In an empirical investigation of 102 European regions in the period 1990-2002, we show that higher innovation performance is conducive to per capita income growth and that social capital affects this growth indirectly by fostering innovation. Our estimates suggest that there is no direct role for social capital to foster per capita income growth in our sample of European Union countries.
    Keywords: social capital, innovation, economic growth, European Union
    JEL: O1 O3 O52 Z13
    Date: 2008–02
  7. By: Joze P. Damijan; Matija Rojec; Maja Ferjancic
    Abstract: Remarkable growth of export performance of transition economies has been one of the most outstanding features of the transition and EU integration processes. The paper looks at the reasons behind this phenomenon. Following Redding and Venables (2003, 2004), and Fugazza (2004), we distinguish between foreign/EU market access and internal supply capacity factors. EU market access has been of great importance for export performance but does not explain the inter country differences. Inter country differences in export performance are explained by internal supply capacity factors, where stable institutional setup, structural reforms, and targeted FDI are in the forefront.
    Keywords: export performance, transition economies of Central and Eastern Europe, (EU) market access, supply capacity, institutional setup, FDI
    JEL: F12 F15 F21 O10 P30
    Date: 2008
  8. By: Aleksynska, Mariya
    Abstract: This paper employs the European Social Survey and the World Values Survey to empirically investigate civic participation of immigrants from fifty-four countries of origin to the European Union. Three sets of issues are addressed in this paper. First, the paper aims at understanding what factors determine civic participation of immigrants at large. Second, it seeks to shed light on differences and similarities between participation outcomes of immigrants and natives. The main part of the paper is dedicated to testing culture transmission and culture assimilation hypothesis with respect to civic participation. Culture assimilation is analysed within the traditional synthetic cohort methodology, and also by testing whether the levels of immigrants’ civic participation depend on the levels of natives’ civic participation in the same countries. Culture transmission is looked at by relating the levels of participation of nonmigrants in countries of origin to participation outcomes of those who migrate. In addition, the effect of other country of origin and country of destination characteristics on immigrants’ civic participation is investigated. The issue of immigrants’ self-selection is addressed by matching immigrants to otherwise similar natives and compatriots who did not migrate. The study finds limited evidence for the transmission of participation culture across borders, although certain home country characteristics continue influencing participation behaviour of individuals after migration: it is those from industrialized, net immigration, culturally more homogeneous countries who tend to participate more. On the other hand, the culture of current place of residence matters most in that by observing higher (lower) participation patterns among natives immigrants tend to participate more (less).
    Keywords: immigration; civic participation; social assimilation; culture transmission
    JEL: F22 Z10 O15 J61 Z13
    Date: 2007–04
  9. By: Luca, MARCHIORI (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: A transition from pay-as-you-go pension systems to more private funded systems is often suggested as a solution to finance pension systems threatened by ageing. This paper analyses alternative potential remedies linked to changes in labour market characteristics, within an international computable overlapping-generations model of the world economy. A prolongation of the working life of skilled or unskilled individuals, an increase in the demand of skills, a rise in the education levels and increased skilled or unskilled immigration have very different outcomes in North-America and in Europe. In the latter region, a postponement in the retirement age of unskilled individuals has the most beneficial effect in relieving the fiscal pressure on pensions systems, because the proportion of unskilled workers is relatively larger in Europe than in North-America. In North-America, where skilled labour is more abundant, an acceleration in skill-biased technical change has the biggest impact on pensions systems, as it raises the productivity of skilled workers.
    Keywords: OLG-CGE Model, ageing, labour market, migration
    JEL: C68 H55 O30 J26 J61
    Date: 2008–02–15
  10. By: Nicholas Economides; Ioannis Lianos
    Date: 2008
  11. By: Ingo Geishecker; Holger Görg; Jakob Roland Munch
    Abstract: This paper studies the impact of outsourcing on individual wages in three European countries with markedly different labour market institutions: Germany, the UK and Denmark. To do so we use individual level data sets for the three countries and construct comparable measures of outsourcing at the industry level, distinguishing outsourcing by broad region. Estimating the same specification on different data show that there are some interesting differences in the effect of outsourcing across countries. We discuss some possible reasons for these differences based on labour market institutions.
    Keywords: International outsourcing, individual wages, labour market institutions
    JEL: F16 J31 C23
    Date: 2008–02
  12. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The collapse of communist regimes in Central and Eastern Europe marked a historical event for the countries on both sides of the iron curtain. Using the recently released EU KLEMS database on detailed sectoral growth and employment measures, we analyse the productivity performance in the period after 1995 for five transition economies, i.e. the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia, and compare their performance with a group of European core economies and partly Austria as a neighbouring small open economy. Our analysis reveals a strong catching-up process with the Western European economies in terms of productivity and sectoral structures. The factors driving this convergence process, however, differ across countries and industries. Apart from an analysis at the aggregate or broad sectoral performance we devote special emphasis to the detailed industry level and in particular to the manufacturing industry, which has served as the main driver in growth and productivity. We demonstrate that the Central and Eastern European countries have successfully specialized in higher-tech industries while maintaining gaps, albeit diminishing, in services. As the strong productivity catching-up was accompanied by low employment growth in the period 1995-2004 - despite high unemployment levels - we also investigate the labour market structures and the changes in patterns of employment.
    Keywords: economic transition, restructuring, growth, multifactor productivity, labour demand
    JEL: D24 P52
    Date: 2008–02
  13. By: Petrongolo, Barbara (London School of Economics); Pissarides, Christopher A. (London School of Economics)
    Abstract: In this paper we study the contribution of inflows and outflows to the dynamics of unemployment in three European countries, the United Kingdom, France and Spain. We compare performance in these three countries making use of both administrative and labor force survey data. We find that the impact of the 1980s reforms in Britain is evident in the contributions of the inflow and outflow rates. The inflow rate became a bigger contributor after the mid 1980s, although its significance subsided again in the late 1990s and 2000s. In France the dynamics of unemployment are driven virtually entirely by the outflow rate, which is consistent with a regime with strict employment protection legislation. In Spain, however, both rates contribute significantly to the dynamics, very likely as a consequence of the prominence of fixed-term contracts since the late 1980s.
    Keywords: unemployment dynamics, job finding rates, job separation rates
    JEL: E24 E32 J6
    Date: 2008–01
  14. By: Stepan Jurajda; Katherine Terrell
    Abstract: Differences in regional unemployment in post-communist economies are large and persistent. We show that inherited variation in human-capital endowment across the regions of four such economies explains the bulk of regional unemployment variation there and we explore potential explanations for this outcome through related capital and labor mobility patterns. The evidence suggests that regions with high inherited skill endowments attract skilled workers as well as FDI. This mobility pattern, which helps explain the lack of convergence in regional unemployment rates, is consistent with the presence of complementarities in skill and capital. Nevertheless, we find no supporting evidence of human capital wage spillovers implied by the complementarities story. Unemployment of the least-skilled workers appears lower in areas with a higher share of college-educated labor and future research is needed to see if this finding as well as the observed migration pattern arise from different adjustments to regional shocks by education level brought about in part by Central European labor-market institutions, such as guaranteed welfare income raising effective minimum wages.
    Keywords: Unemployment, Human capital, Regional labor markets, Transition economies, Labor Mobility, Complementarities, Spillovers, Czech Republic, Hungary, Romania, Ukraine.
    JEL: E24 J0 J61
    Date: 2007–12
  15. By: Ph. Monfort; Hylke Vandenbussche; E. Forlani
    Abstract: In this paper we study the effect of import competition from China on the Belgian textiles sector. Our analysis comprises both trade data and firm-level data. We study the evolution of the unit values in textiles exported from China into the EU versus textiles exported from Belgium to the rest of the EU over the past ten years. We clearly find evidence of a widening price gap between Chinese and Belgian textiles export prices. Chinese textiles seem to become relatively cheaper over time. These findings are in line with Schott (2004; 2007) who argues that capital abundant countries in the US and Europe use their endowment advantage to produce product varieties that are superior in quality compared to labour intensive countries like China. Next we use firm-level data on Belgian textiles firms in search of evidence of quality and skill upgrading in Belgian textiles exports. We study the evolution of firm-level variables such as R&D outlays, the proportion of skilled and unskilled labour used in production and capital intensity. Both China’s entry into the WTO and the end of the Multi- Fibre Agreement significantly seem to cause important shifts in firm level production processes. A very robust result that emerges from the analysis is the one of skill upgrading. While over the past ten years total employment in the Belgian textiles sector has substantially decreased, the ratio of skilled versus unskilled workers has gone up significantly. The evidence is indicative that the Belgian textile sector has been undergoing substantial changes. It is becoming smaller but at the same time seems to be responding to the competition from a low-wage country like China by increasing the skill-content of its products and moving up the quality ladder.
    Date: 2008
  16. By: Catalina Amuedo-Dorantes (Department of Economics, San Diego State University); Sara de la Rica (Depto. Fundamentos del Análisis Económico II, Universidad del País Vasco & IZA)
    Abstract: Using data from the Spanish Labor Force Survey (Encuesta de Población Activa) from 1999 through 2007, we explore the role of employment opportunities in explaining the growing immigrant flows of recent years. Subsequently, we investigate whether immigrant inflows have helped reduce regional employment disparities. Our results indicate that immigrants choose to reside in regions with higher employment rates for their particular skills. However, perhaps owing to its recent nature or the ability of the production infrastructure to absorb the increase in immigrant labor, immigration does not seem to have significantly helped employment convergence across regions.
    Date: 2007–11

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