nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2011‒02‒12
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Job mobility in Europe, Japan and the US By Borghans Lex; Golsteyn Bart
  2. Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe By Raphael Auer; Kathrin Degen; Andreas Fischer
  3. The European Emission Trading Scheme and Renewable Energy Policies: Credible Targets for Incredible Results? By Simone Borghesi
  4. Does Emigration Benefit the Stayers? The EU Enlargement as a Natural Experiment. Evidence from Lithuania By Benjamin Elsner
  5. Economic Integration in Europe and Income Divergence over EU Regions (1995 - 2006) By Sunandan Ghosh; Gerrit Faber
  6. Income Inequalities within Couples in the Czech Republic and European Countries By Martina Mysíková
  7. The wage effects of immigration and emigration By Docquier, Frederic; Ozden, Caglar; Peri, Giovanni
  8. Disability and social security reforms: The French case By Luc Behaghel; Didier Blanchet; Thierry Debrand; Muriel Roger
  9. Generalized Nash Equilibrium and market coupling in the European power system By SMEERS, Yves; OGGIONI, Giorgia; ALLEVI, Elisabetta; SCHAIBLE, Siegfried
  10. Equality of Opportunity and the Distribution of Long-Run Income in Sweden By Björklund, Anders; Jäntti, Markus; Roemer, John E.
  11. Tax Policy and Employment: How Does the Swedish System Fare? By Pirttälä, Jukka; Selin, Håkan
  12. Valuation of Linkages between Climate Change, Biodiversity and Productivity of European Agro-Ecosystems By Ruslana Rachel Palatnik; Paulo A.L.D. Nunes
  13. Income distribution and the effect of the financial crisis on the Italian and Spanish labour markets By Tindara Addabbo; Anna Maccagnan; Carmen Llorca-Rodríguez; Rosa García-Fernández
  14. Policies Towards a Sustainable Use of Water in Spain By Andrés Fuentes
  15. A Dynamic Spatial Panel Data Approach to the German Wave Curve By Badi H. Baltagi; Uwe Blien and Katja Wolf
  16. On Regional Unemployment: An Empirical Examination of the Determinants of Geographical Differentials in the UK By Dimitris Korobilis; Michelle Gilmartin

  1. By: Borghans Lex; Golsteyn Bart (METEOR)
    Abstract: Evidence about job mobility outside the U.S. is scarce and difficult to compare cross-nationally because of non-uniform data. We document job mobility patterns of college graduates in their first three years in the labor market, using unique uniform data covering 11 European countries and Japan. Using the NLSY, we replicate the information in this survey to compare the results to the U.S. We find that (1) U.S. graduates hold more jobs than European graduates. (2) Contrasting conventional wisdom, job mobility in Japan is only somewhat lower than the European average. (3) There are large differences in job mobility within Europe.
    Keywords: labour economics ;
    Date: 2011
  2. By: Raphael Auer (Swiss National Bank and Prince); Kathrin Degen (University of Lausanne); Andreas Fischer (Swiss National Bank and CEPR)
    Abstract: What is the impact of import competition from low-wage countries (LWCs) on inflationary pressure in Europe? This paper examines whether labor- intensive exports from emerging Europe, Asia, and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, instrumental variable estimations predict that LWC im- port competition is associated with strong price effects. More specifically, when LWC exporters capture 1% of European market share, producer prices decrease by about 3%. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. Decomposing the mechanisms that underlie the LWC price effect on European industry, we show that import competition has a pronounced effect on average productivity with only a muted effect on wages or margins. Owing to the exit of firms and the increase in productivity, LWC import competition is shown to have substantially reduced employment in the European manufacturing sector.
    Date: 2011–02
  3. By: Simone Borghesi (University of Siena)
    Abstract: This paper discusses the merits and limits of the recent European energy policy aimed at reducing carbon emissions, devoting particular attention to the European Trading System of carbon permits and to the measures that the European Union has adopted to promote renewable energy sources. From the comparison of past goals and present results, it is argued that more credible targets for carbon emission reductions and renewable shares would probably help the transition towards an alternative energy system and the necessary reduction of greenhouse gases.
    Keywords: Pollution, Sustainable Development, Climate Change, Fossil Fuels, Energy Policy, European Union, European Trading System (ETS), Cap-And-Trade, Renewable Energy Sources, Credibility
    JEL: L11 Q28 Q38 Q42 Q43 Q48
    Date: 2010–10
  4. By: Benjamin Elsner (Trinity College Dublin, Department of Economics and the Institute for International Integration Studies)
    Abstract: The eastern enlargement of the European Union in 2004 triggered a large flow of migrant workers from the new member states to the UK and Ireland. This paper analyzes the impact of this migration wave on the real wages in the source countries. I consider the case of Lithuania, which had the highest share of emigrants relative to its workforce among all ten new member states. Using data from the Lithuanian Household Budget Survey and the Irish Census, I find that emigration had a significant positive effect on the wages of men who stayed in the country, but no such effect is visible for women. A percentage point increase in the emigration rate increases the real wage of men on average by 1%. Several robustness checks confirm this result.
    Keywords: Emigration, Labor Mobility, EU Enlargement
    JEL: F22 J61 R23
    Date: 2010–12
  5. By: Sunandan Ghosh; Gerrit Faber
    Abstract: This paper tests the question whether the integration process in the EU has contributed to the often-observed growing dispersion of income over the regions of the EU, in the presence of convergence between the member states. We do this by introducing price convergence as an indicator of integration and controlling for the concentration of skilled labour and allowing for path dependency. Our main findings are in line with the expectations of the New Economic Geography School in that integration does contribute to the growing regional inequality in the EU. Price convergence is a significant explanatory variable even after the introduction of a time lag in the dependent variable
    Keywords: Economic integration, Regional inequality, European Union
    JEL: F11 F15 F22 R11
    Date: 2010–12
  6. By: Martina Mysíková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Sociology of the Academy of Sciences, Prague)
    Abstract: This study analyses the income distribution within couples in the Czech Republic and ten European countries using the EU-SILC 2005 database. Data from the Luxembourg Income Study (LIS) database supplement the analysis with previous period (1986–2000). Women, on average, contribute less to a couple’s income than men. Among the included countries, within-couple income inequality tends to be lower in the new EU member states than in the old ones, with the Czech Republic being the exception. Within-couple income inequality has two crucial factors: employment of female partners and, subsequently, their wages. In the context of the first, the inter-generational transmission of the traditional model of the family proved to have a significant negative impact on the female employment decision mainly in the old EU member states. Finally, gender wage gaps between men and women who live in a couple were examined and compared with the gender wage gaps for single individuals. The gender wage gap proved to be higher for cohabiting individuals than for singles even after adjusting for gender differences in individual and job characteristics.
    Keywords: gender wage gap, traditional family model, within-couple inequalities
    JEL: D19 J31 J79
    Date: 2011–01
  7. By: Docquier, Frederic; Ozden, Caglar; Peri, Giovanni
    Abstract: Immigrants in Rome or Paris are more visible to the public eye than the Italian or French engineers in Silicon Valley, especially when it comes to the debate on the effects of immigration on the employment and wages of natives in high-income countries. This paper argues that such public fears, especially in European countries are misplaced; instead, more concern should be directed towards emigration. Using a new dataset on migration flows by education levels for the period 1990-2000, the results show the following: First, immigration had zero to small positive long-run effect on the average wages of natives, ranging from zero in Italy to +1.7 percent in Australia. Second, emigration had a mild to significant negative long-run effect ranging from zero for the US to -0.8 percent in the UK. Third, over the period 1990-2000, immigration generally improved the income distribution of European countries while emigration worsened it by increasing the wage gap between the high and low skilled natives. These patterns hold true using a range of parameters for the simulations, accounting for the estimates of undocumented immigrants, and correcting for the quality of schooling and/or labor-market downgrading of skills. All results go counter to the popular beliefs about migration, but they are due to the higher skill intensity of both emigration and immigration relative to non-migrants.
    Keywords: Population Policies,Human Migrations&Resettlements,Voluntary and Involuntary Resettlement,International Migration,Labor Markets
    Date: 2011–02–01
  8. By: Luc Behaghel (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Didier Blanchet (INSEE-D3E - Département des études économiques d'ensemble - INSEE); Thierry Debrand (IRDES - Institut de recherche et documentation en économie de la santé - IRDES); Muriel Roger (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, INSEE-D3E - Département des études économiques d'ensemble - INSEE)
    Abstract: The French pattern of early transitions out of employment is basically explained by the low age at “normal” retirement and by the importance of transitions through unemployment insurance and early-retirement schemes before access to normal retirement. These routes have exempted French workers from massively relying on disability motives for early exits, contrarily to the situation that prevails in some other countries where normal ages are high, unemployment benefits low and early-retirement schemes almost non-existent. Yet the role of disability remains interesting to examine in the French case, at least for prospective reasons in a context of decreasing generosity of other programs. The study of the past reforms of the pension system underlines that disability routes have often acted as a substitute to other retirement routes. Changes in the claiming of invalidity benefits seem to match changes in pension schemes or controls more than changes in such health indicators as the mortality rates. However, our results suggest that increases in average health levels over the past two decades have come along with increased disparities. In that context, less generous pensions may induce an increase in the claiming of invalidity benefits partly because of substitution effects, but also because the share of people with poor health increases.
    Keywords: Pensions ; Social Security ; Disability ; Early Retirement ; Unemployment ; Senior
    Date: 2011–01
  9. By: SMEERS, Yves (CORE and School of Engineering (INMA), Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium); OGGIONI, Giorgia (University of Brescia, Department of Quantitative Methods, I-25122 Brescia, Italy); ALLEVI, Elisabetta (University of Brescia, Department of Quantitative Methods, I-25122 Brescia, Italy); SCHAIBLE, Siegfried (Chung Yuan Christian University, Department of Applied Mathematics, 32023 Chung-Li, Taiwan)
    Abstract: “Market Coupling” is currently seen as the most advanced market design in the restructuring of the European electricity market. Market coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-Variational Inequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of Quasi-Variational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered for instance in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphazises the structuring of the problem. A companion paper considers the full problem of market coupling and counter-trading and presents a more extensive numerical analysis.
    Keywords: Generalized Nas Equilibrium, Quasi-Variational Inequalities, market coupling, counter-trading, European electricity market
    JEL: D52 D58 Q40
    Date: 2010–09–01
  10. By: Björklund, Anders (SOFI, Stockholm University); Jäntti, Markus (Abo Academy of Finland); Roemer, John E. (Yale University)
    Abstract: Equality of opportunity is an ethical goal with almost universal appeal. The interpretation taken here is that a society has achieved equality of opportunity if it is the case that what individuals accomplish, with respect to some desirable objective, is determined wholly by their choices and personal effort, rather than by circumstances beyond their control. We use data for Swedish men born between 1955 and 1967 for whom we measure the distribution of long-run income, as well as several important background circumstances, such as parental education and income, family structure and own IQ before adulthood. We address the question: in Sweden, given its present constellation of social policies and institutions, to what extent is existing income inequality due to circumstances, as opposed to 'effort'? Our results suggest that several circumstances, importantly both parental income and own IQ, are important for long-run income inequality, but that variations in individual effort account for the most part of that inequality.
    Keywords: equality of opportunity, family background, inequality, long-run income
    JEL: D31 D63 J62 C14
    Date: 2011–01
  11. By: Pirttälä, Jukka (University of Tampere and the Labour Institute for Economic Research); Selin, Håkan (Uppsala Center for Fiscal Studies)
    Abstract: This paper reviews the literature on optimal taxation of labour income and the empirical work on labour supply and the elasticity of taxable income in Sweden. It also presents an overview of Swedish taxation of labour income, offers calculations on the development in effective marginal tax rates and participation tax rates, and estimates, using the difference-in-differences method, the impact of tax incentives on employment rates of elderly workers. After this background, we ponder possibilities for reforming the Swedish tax system to improve its labour market impacts. We suggest better targeting the earned income tax credit at families and low-income workers, lowering the top marginal tax rates, and maintaining the tax incentives for older workers.
    Keywords: Optimal taxation; labour income taxation; labour supply; taxable income; Swedish tax system.
    JEL: H21 H24 J22
    Date: 2011–02–01
  12. By: Ruslana Rachel Palatnik (FEEM, Department of Economics, the Max Stern Academic College of Emek Yezreel Israel, NRERC- Natural Resource and Environmental Research Center, University of Haifa); Paulo A.L.D. Nunes (FEEM and Center for Environmental Economics and Management, Department of Economics, Ca’ Foscari University of Venice)
    Abstract: It is clear that climate change involves changes in temperature and precipitation and therefore directly affects land productivity. However, this is not the only channel for climatic change to affect agro-systems. Biodiversity is subject to climatic fluctuations and in turn may alter land productivity too. Firstly, biodiversity is an input into agro-ecosystems. Secondly, biodiversity supports the functioning of these systems (e.g. the balancing of the nutrient cycle). Thirdly, agro-systems also host important wildlife species which, though not always, play a functional role in land productivity, nonetheless constitute important sources of landscape amenities. The present paper illustrates a unique attempt to economically assess this additional effect climate change may imply on agriculture. We first empirically evaluate changes in land productivity due to climatic change effect on temperature, precipitations and biodiversity. Then we estimate the economic cost of biodiversity impact on agro-systems. Our key finding is that climate-change-induced biodiversity impact on European agro-systems measured in terms of GDP change in year 2050 is sufficiently large to deepen the direct climate-change effect in some regions and to reverse it in others. Different economies show different resilience profiles to deal with this effect.
    Keywords: Climate Change, Biodiversity, Agro-Ecosystems
    JEL: D58 Q54 Q57
    Date: 2010–10
  13. By: Tindara Addabbo; Anna Maccagnan; Carmen Llorca-Rodríguez; Rosa García-Fernández
    Abstract: This paper aims at estimating the costs of the current crisis in terms of income distribution and poverty taking into account by means of microsimulation techniques - the change in employment status in Spain and Italy. We construct a micro simulation analysis on the impact of the crisis on unemployment, household income, and inequality using the European Statistics on Income and Living Conditions Surveys, and Labour Force Surveys data for Italy and Spain with reference to different types of households. We consider the effect of joblessness on household income and well-being and the impact of different systems of unemployment benefit on unemployment sustainability. Our focus is not only on the pecuniary dimension of well-being, but also in terms of the costs of limited access to medical and dental treatment and analyses
    JEL: I32 J6 J65
    Date: 2010–12
  14. By: Andrés Fuentes
    Abstract: Spain uses its natural water resources intensively, mostly in agriculture, thanks to a highly developed dam infrastructure. The limits for extraction of natural resources have largely been reached and climate change is expected to continue lowering natural water endowments markedly in future especially in dry areas of the country. The costs of exploiting alternative supply sources on a large scale, notably desalination and recycling, remain well above water prices paid by consumers at present. The government has recognised that water policies therefore need to switch to demand management, so as to ensure that available resources are put to most efficient and priority use. Scope for water savings is substantial, especially in agriculture, where much irrigation water generates little value-added. The government has subsidised the use of more efficient irrigation technology at considerable budgetary cost, which has contributed to a modest reduction of water use in irrigation in recent years. The participatory approach in water policy governance should be extended further to stakeholders beyond the irrigation community, to include more scientists or representatives of institutions protecting local ecosystems Low water prices, combined with the free allocation of water concessions, still hamper an efficient use of water resources. Water prices will need to rise further so as to reflect service provision costs in full as well as the scarcity and environmental costs of water abstractions. Steps to better take into account water scarcity should include the progressive inclusion of market instruments, such as the tendering of water concessions as well as the elimination of some barriers to the exchange of such concessions among users. Benchmark regulation of water utilities would contribute to more efficient water supply and treatment services. Further steps need to be taken to halt excessive groundwater abstractions, including through improved monitoring and the introduction of charges on abstractions from overexploited aquifers.<P>Action en faveur d'une utilisation durable de l'eau en Espagne<BR>L’Espagne fait un usage intensif de ses ressources naturelles en eau, surtout en agriculture, grâce aux très nombreux barrages qu’elle a mis en place. L’extraction de ces ressources a dans une large mesure atteint ses limites, d’autant qu’elles devraient continuer de diminuer sensiblement à l’avenir sous l’effet du changement climatique, notamment dans les régions sèches du pays. Les coûts d’exploitation à grande échelle d’autres formes d’approvisionnement en eau, comme le dessalement et le recyclage de l’eau, restent bien supérieurs aux tarifs payés aujourd’hui par les consommateurs. Dans ces conditions, le gouvernement a admis la nécessité de recentrer la politique de l’eau sur la gestion de la demande, pour faire en sorte que les ressources disponibles soient affectées aux usages les plus efficients et prioritaires. Il existe d’importants gisements d’économies d’eau, en particulier dans l’agriculture où le rendement de l’eau d’irrigation est souvent faible. Le gouvernement a subventionné l’adoption de techniques d’irrigation plus efficientes, pour un coût budgétaire considérable, ce qui a contribué à une légère réduction de la consommation d’eau d’irrigation ces dernières années. L’approche participative dans la gouvernance de la politique d’eau devrait être étendue à un plus large éventail d’intervenants au delà du secteur de l’irrigation, dont les chercheurs et les représentants d’institutions qui protègent les écosystèmes locaux. Le bas niveau des prix de l’eau, conjugué à l’attribution gratuite des concessions, fait encore obstacle à une utilisation efficiente des ressources en eau. Les prix de l’eau devront encore augmenter afin de refléter pleinement les coûts de fourniture du service, ainsi que le coût de rareté et les coûts environnementaux des prélèvements d’eau. Pour une meilleure prise en compte de la rareté de l’eau, il conviendrait entre autres d’adopter progressivement des instruments économiques tels que la mise aux enchères des concessions et d’éliminer certains obstacles aux échanges de concessions entre les usagers. Une régulation par comparaison des compagnies des eaux contribuerait à accroître l’efficience des services de distribution d’eau et de traitement des eaux. De nouvelles mesures s’imposent pour mettre fin aux prélèvements souterrains excessifs, à commencer par une meilleure surveillance et l’instauration de redevances sur les prélèvements d’eau dans les aquifères surexploités.
    JEL: Q15 Q18 Q25
    Date: 2011–02–02
  15. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020); Uwe Blien and Katja Wolf (Institute for Employment Research (IAB), D-90327 Nuremberg, Germany-0049-911-1793035 and Otto-Friedrich-University of Bamberg (Blien))
    Abstract: A wave curve is a decreasing function of wages on the regional unemployment rate. Most empirical studies on the wave curve ignore possible spatial interaction effects between the regions which are the primary units of research. This paper reconsiders the western German wage curve with a special focus on the geography of labour markets. Spillovers between regions are taken into account. The paper tests whether the unemployment rate in the larger surrounding region also affects wages. In addition, agglomeration effects and effects of local monopsony are assessed. The main data base is a random sample of 974,179 employees observed over the period 1980-2004 and covering 326 NUTS3 units (districts). This rich data set is used to estimate a dynamic wage curve according to the two-step approach of Bell et al. (2002). In the first step one controls for individual heterogeneity and in the second step one allows for spatial effects of unemployment across regions on wages. We check the sensitivity of this wage elasticity to various spatial weight matrices as well as allowing for the endogeneity of unemployment. We also estimate the wage elasticity for various population groups.
    Keywords: Seemingly unrelated regressions, panel data, spatial dependence, heterogeneity, forecasting.
    JEL: J30 C23 R10
    Date: 2010–09
  16. By: Dimitris Korobilis (Université Catholique de Louvain); Michelle Gilmartin (University of Strathclyde)
    Abstract: This paper considers the determinants of regional disparities in unemployment rates for the UK regions at NUTS-II level. We use a mixture panel data model to describe unemployment differentials between heterogeneous groups of regions. The results indicate the existence of two clusters of regions in the UK economy, characterised by high and low unemployment rates respectively. A major source of heterogeneity seems to be caused by the varying (between the two clusters) effect of the share of employment in the services sector, and we trace its origin to the fact that the “high unemployment” cluster is characterised by a higher degree of urbanization.
    Keywords: distribution dynamics, regional labour markets, unemployment differentials
    JEL: C23 J08 J64 R12 R23
    Date: 2011–02

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