nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2011‒05‒30
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. How Far is the East? Educational Performance in Eastern Europe By Alina Botezat; Ruben R. Seiberlich
  2. Worker flows, job flows and establishment wage differentials : analyzing the case of France By Richard Duhautois; Fabrice Gilles; Héloïse Petit
  3. Labor Market Policy in the Great Recession: Some Lessons from Denmark and Germany By John Schmitt
  4. Ordinal Variables and the Measurement of Polarization By FUSCO Alessio; SILBER Jacques
  5. The hidden burden of the income tax: Compliance costs of German individuals By Blaufus, Kay; Eichfelder, Sebastian; Hundsdoerfer, Jochen
  6. Experiments in the Open Method of Coordination: Measuring the Impact of EU Employment Policies By Silvana Sciarra
  7. Human capital investment strategies in Europe By Pfeiffer, Friedhelm; Reuß, Karsten
  8. The competitiveness of regions. A comparison between Belgian and German regions By Joep Konings; Luca Marcolin
  9. Labor Market Effects of Immigration: Evidence from Neighborhood Data By Bauer, Thomas; Flake, Regina; Sinning, Mathias
  10. The Impact of Labour Market Dynamics on the Return-Migration of Immigrants By Bijwaard, Govert; Schluter, Christian; Wahba, Jackline
  11. The distributional impact of the crisis in Greece By Manos Matsaganis; Chrysa Leventi
  12. The Aftermath of Reunification: Sectoral Transition, Gender, and Rising Wage Inequality in East Germany By Kohn, Karsten; Antonczyk, Dirk
  13. The role of worker flows in the dynamics and distribution of UK unemployment By Elsby, Michael W.L.; Smith, Jennifer C.; Wadsworth, Jonathan
  14. Unintended Effects of a Family-Friendly Law in a Segmented Labor Market By Fernández-Kranz, Daniel; Rodriguez-Planas, Nuria
  15. An Indicator for National Systems of Innovation: Methodology and Application to 17 Industrialized Countries By Heike Belitz; Marius Clemens; Christian von Hirschhausen; Jens Schmidt-Ehmcke; Axel Werwatz; Petra Zloczysti
  16. Do They Understand the Benefits from Education? Evidence on Dutch High School Students’ Earnings Expectations By Mazza, Jacopo; Hartog, Joop
  17. A Flexicurity Labour Market in the Great Recession: The Case of Denmark By Andersen, Torben
  18. Changing School Autonomy: Academy Schools and their Introduction to England's Education By Stephen Machin; James Vernoit
  19. The Effect of Education Policy on Crime: An Intergenerational Perspective By Meghir, Costas; Palme, Mårten; Schnabel, Marieke
  20. More Alike than Different: The Spanish and Irish Labour Markets Before and After the Crisis By Agnese, Pablo; Salvador, Pablo F.

  1. By: Alina Botezat (Department of Economics, Al. I. Cuza University of Iasi, Rumänien); Ruben R. Seiberlich (Department of Economics, University of Konstanz, Germany)
    Abstract: When the Soviet Union collapsed a transition process started in Eastern Europe. This included a number of reforms to adapt the educational system to the new requirements of the job market. To assess the educational systems in Eastern Europe, this paper takes a look at the gap in PISA test scores between different countries. Using PISA 2006 data we disentangle the effects that explain the gap between Finland, the best performing country, and seven Eastern European countries, as well as, between Eastern European countries. The methodology applied in this paper is a semiparametric version of the threefold Blinder-Oaxaca decomposition, an approach which is not yet used in the research regarding the differences in school outcomes. Our results show that in all cases the differences in characteristics does not explain much of the gap. The return effect is the driving force of the differences in test scores. Under our identifying assumption, our results therefore indicate that the PISA test score gap can mainly be attributed to the different efficiency of school systems and are not due to better characteristics of students in a particular country. Furthermore, we provide evidence that the gap is smaller for better students indicating that, especially for poor performing students, the efficiency of Eastern European schools is behind the efficiency of Finnish schools.
    Keywords: PISA, test score gap, decomposition, semiparametric, propensity score matching
    JEL: J24 I21 C14
    Date: 2011–05–22
  2. By: Richard Duhautois (CEE - Centre d'Etudes de l'Emploi - Ministère de la Recherche - Ministère chargé de l'Emploi, ERUDITE - Equipe de Recherche sur l'Utilisation des Données Individuelles Temporelles en Economie - Ministère de l'Education nationale, de l'Enseignement supérieur et de la Recherche - Université Paris XII Val de Marne : EA437 - Université Paris-Est); Fabrice Gilles (CEE - Centre d'Etudes de l'Emploi - Ministère de la Recherche - Ministère chargé de l'Emploi, EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université des Sciences et Technologies de Lille - Lille I); Héloïse Petit (CEE - Centre d'Etudes de l'Emploi - Ministère de la Recherche - Ministère chargé de l'Emploi, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: We address the relation between establishment wage differentials and worker flows, i.e. the churning rate and the quit rate. Our analysis is based on a linked employer-employee dataset covering the French private non-farm sector from 2002 to 2005. Our estimations support the hypothesis that wage premium is an efficient human resource management tool to stabilize workers : churning rates are lower in high-paying firms due to lower quit rates. We further show that the relation is not linear, and it differs among skill groups and according to establishment size : it is strongest for low-wage levels, for low-skilled workers and in large establishments.
    Keywords: Establishment wage effects, worker flows, churning rate, quite rate, linked employer-employee panel data, France.
    Date: 2011–04
  3. By: John Schmitt
    Abstract: This paper reviews the recent labor-market performance of 21 rich countries, with a focus on Denmark and Germany. Denmark, which was widely seen as one of the world's most successful labor markets before the downturn, has struggled in recent years. Germany, however, has outperformed the rest of the world's rich countries since 2007, despite earlier labor-market difficulties. Labor-market institutions seem to explain the different developments in the two economies. Danish institutions – which include extensive opportunities for education, training, and placement of unemployed workers – appear to perform well when the economy is at or near full employment, but have not been effective during the downturn. German labor-market institutions, which emphasize job security by keeping workers connected to their current employers, may have drawbacks when the economy is operating at or near full employment, but have performed well in the Great Recession. The paper also discusses lessons for U.S. labor-market policy.
    Keywords: Great Recession, recession, labor, labor policy,
    JEL: E E2 E24 E3 E6 E65 J J2 J21 J3 J31 J33 J38 J6 J62 J65 J68 J8
    Date: 2011–05
  4. By: FUSCO Alessio; SILBER Jacques
    Abstract: This paper aims at proposing measures of polarization for the distribution of a variable when information on the latter is only ordinal. The measures proposed are borrowed from the recent literature on the measurement of segregation. An empirical illustration is given, based on the European Union Statistics on Income and Living Conditions (EU-SILC) for the year 2008. The ordinal variable refers to the „ability to make ends meet? and polarization is measured between groups defined by the citizenship of the household member who answered the household questionnaire. Results show that Luxembourg and Estonia have the highest degree of polarization whereas Cyprus, Ireland and the United Kingdom display the lowest degree.
    Keywords: polarization; ordinal information; EU-SILC; segregation
    JEL: D31 D63
    Date: 2011–05
  5. By: Blaufus, Kay; Eichfelder, Sebastian; Hundsdoerfer, Jochen
    Abstract: We analyze the compliance costs of individual taxpyers resulting from the German income tax. using survey data that has been raised between December 2008 and April 2009, we find evidence for a considerably higher cost burden of self-employed taxpaxers. Taxable income and the demand for external support are positively correlated with compliance costs, while the time effort of female taxpayers is significantly lower. We also find evidence for a positive correlation of education and tax knowledge with the compliance burden. By contrast, a joint assessment of a married couple seems to reduce the monetized time effort. The aggregated cost burden of German income taxpayers amounts to 6.1-7.2 billion €, respectively 3.2-3.7 % of the income tax revenue in 2007. This estimate is higher than latest projections in a number of other European countries like Spain and Sweden, but significantly lower than results for the United States and Australia. --
    Keywords: tax complexity,tax compliance costs,compliance burden,red tape,personal income tax
    JEL: H21 H23 H25 H26 H83
    Date: 2011
  6. By: Silvana Sciarra (University of Florence)
    Date: 2011
  7. By: Pfeiffer, Friedhelm; Reuß, Karsten
    Abstract: The paper analyses alternative investment policies and their consequences for the evolution of human capital in Europe based on a model of age dependent skill formation where the life span depends on investments during childhood. What makes the approach special is the analysis of the returns to education of alternative educational policies targeted at certain ages, countries, or productivity levels for two counterfactual policy regimes, one regime assuming the actual state of diversity and the other a unified Europe. Our results indicate that investments need to be directed more generally to people of younger ages in Europe. If equality is important enough additional investment should specifically be directed to disadvantaged individuals during childhood. Furthermore, high levels of life cycle income inequality and a high skill level increase the optimal amount of investments during younger adulthood. In a unified Europe, the effectiveness of policies to reduce inequality would be higher. --
    Keywords: human capital investment,life cycle skill formation,welfare function,Europe
    JEL: D87 I12 I21 J13
    Date: 2011
  8. By: Joep Konings; Luca Marcolin
    Abstract: This paper uses firm level data to analyze the regional competitiveness of two federal Euro area countries, Belgium and Germany. Competitiveness is defined as the labor cost per unit of output and hence takes into account productivity differences. Analyzing regional competitiveness is important because of the regional concentration in economic activity, the unequal spatial development of regions within countries and the increased importance of regional policy both at the EU as at the national level.
    Date: 2011
  9. By: Bauer, Thomas (RWI); Flake, Regina (Ruhr Graduate School in Economics); Sinning, Mathias (Australian National University)
    Abstract: This paper combines individual-level data from the German Socio-Economic Panel (SOEP) with economic and demographic postcode-level data from administrative records to analyze the effects of immigration on wages and unemployment probabilities of high- and low-skilled natives. Employing an instrumental variable strategy and utilizing the variation in the population share of foreigners across regions and time, we find no support for the hypothesis of adverse labor market effects of immigration.
    Keywords: international migration, effects of immigration
    JEL: F22 J31 J64 R23
    Date: 2011–05
  10. By: Bijwaard, Govert (NIDI - Netherlands Interdisciplinary Demographic Institute); Schluter, Christian (University of Southampton); Wahba, Jackline (University of Southampton)
    Abstract: Using administrative panel data on the entire population of new labour immigrants to The Netherlands, we estimate the causal effects of labour dynamics on their return decisions. Specifically, the roles of unemployment and re-employment spells on immigration durations are examined. The endogeneity of labour market outcomes and the return migration decision, if ignored, confounds the causal effect. This empirical challenge is addressed using the "timing-of-events" method. We estimate the model separately for distinct immigrant groups, and find that, overall, unemployment spells shorten immigration durations, while re-employment spells delay returns for all but one group. The magnitude of the causal effect differs across groups.
    Keywords: temporary migration, durations, timing of event method, labour market dynamics
    JEL: J61 J64 C41
    Date: 2011–05
  11. By: Manos Matsaganis (Athens University of Economics and Business); Chrysa Leventi (Athens University of Economics & Business)
    Abstract: The severe economic crisis affecting Greece is widely expected to have a significant social impact in terms of greater inequality and increased poverty. We provide an early assessment of whether (and to what extent) this is the case. More specifically, we distinguish between two inter-related factors: on the one hand, the austerity measures taken to reduce fiscal deficits; on the other hand, the wider recession. Using the European tax-benefit model EUROMOD we attempt to quantify the distributional implications of both. With respect to the austerity measures, we focus on the changes introduced in spring 2010 in income tax, public sector pay and pension benefits. With respect to the wider recession, we attempt to estimate the distributional impact of the recent rise in unemployment by adjusting the model's input dataset in the light of recent Labour Force Survey data. We simulate the (ceteris paribus) impact of these changes on the distribution of incomes, while also estimating how the total burden of the crisis is shared across income groups, taking into account tax evasion and benefit non take up. We conclude by discussing the methodological pitfalls and policy implications of our research.
    Keywords: Austerity, Greece, inequality, poverty, microsimulation
    JEL: C81 H55 I3
    Date: 2011–05–20
  12. By: Kohn, Karsten (KfW Bankengruppe); Antonczyk, Dirk (University of Freiburg)
    Abstract: Using a large administrative data set, this paper studies the evolution of the East German wage structure throughout the transition period 1992-2001. Wage dispersion has generally been rising. The increase occurred predominantly in the lower part of the wage distribution for women and in the upper part for men. Sectoral transition affected women to a much larger extent than men. A sequential decomposition analysis using quantile regressions reveals that changes in industry-specific remuneration schemes contributed strongly to the rise in wage inequality in the lower part of the distribution for female workers. On the other hand, inter-industry trends away from the manufacturing sector towards service sectors contribute to the smaller increase of inequality in the upper part of the distribution, while causing wage dispersion in the lower part of the distribution to decline. Changes in the industry composition alone would have led to a polarization of wages for female workers. For men, changes in individual characteristics and a general time trend contribute the largest part to the increasing wage dispersion. These gender differences result from employment segregation across industries right after German reunification, and a particularly strong concentration of females in the public sector.
    Keywords: wage distribution, transition, gender, decomposition, quantile regression, polarization, East Germany
    JEL: J31 C21
    Date: 2011–05
  13. By: Elsby, Michael W.L.; Smith, Jennifer C.; Wadsworth, Jonathan
    Abstract: Unemployment varies substantially over time and across subgroups of the labour market. Worker flows among labour market states act as key determinants of this variation. We examine how the structure of unemployment across groups and its cyclical movements across time are shaped by changes in labour market flows. Using novel estimates of flow transition rates for the UK over the last 35 years, we decompose unemployment variation into parts accounted for by changes in rates of job loss, job finding and flows via non-participation. Close to two-thirds of the volatility of unemployment in the UK over this period can be traced to rises in rates of job loss that accompany recessions. The share of this inflow contribution has been broadly the same in each of the past three recessions. Decreased job-finding rates account for around one-quarter of unemployment cyclicality and the remaining variation can be attributed to flows via non-participation. Digging deeper into the structure of unemployment by gender, age and education, the flow-approach is shown to provide a richer understanding of the unemployment experiences across population subgroups. Key words: labour market ; unemployment ; worker flows JEL classification: E24 ; J6
    Date: 2011
  14. By: Fernández-Kranz, Daniel (IE Business School, Madrid); Rodriguez-Planas, Nuria (Universitat Autònoma de Barcelona)
    Abstract: Family-friendly laws may backfire if not all workers with access to the policies use them. Because these policies are costly to the employer, hiring practices may consequently be affected at the detriment of the at-risk population who may end up accessing the policy. We exploit a 1999 Spanish law that granted all workers with children under 7 years the right to work part-time. Most importantly, the law declared a layoff invalid if the worker had previously asked for a work-week reduction due to family responsibilities. Using a difference-in-differences (DD) methodology, we first find evidence that the law increased part-time work among eligible mothers with a permanent contract, but had no effect on eligible fathers or mothers with a temporary contract. This effect is driven by the less-educated women. Then, using both a DD and a DDD approach, we analyze the effects of the law among the at-risk population, i.e., childbearing-aged women with no children under 7. We find that this policy led to the unintended effect of decreasing the likelihood of being employed with a permanent contract among the at-risk high-school graduate women (relative to their male counterpart), while increasing their relative likelihood of having a fixed-term contract job. These findings suggest that, after the law, employers preferred hiring childbearing-aged men under permanent contracts (offering fixed-term contracts to childbearing-aged women).
    Keywords: temporary employment, flexible work arrangement laws, European unemployment
    JEL: J21 J68 J78
    Date: 2011–05
  15. By: Heike Belitz; Marius Clemens; Christian von Hirschhausen; Jens Schmidt-Ehmcke; Axel Werwatz; Petra Zloczysti
    Abstract: We develop a composite indicator measuring the performance of national innovation systems. The indicator takes into account both "hard" factors that are quantifiable (such as R&D spending, number of patents) and "soft" factors like the assessment of preconditions for innovation by managers. We apply the methodology to a set of 17 industrialized countries on a yearly basis between 2007 and 2009. The indicator combines results from public opinion surveys on the process of change, social capital, trust and science and technology to achieve an assessment of a country's social climate for innovation. After calculating and ranking the innovation indictor scores for the 17 countries, we group them into three classes: innovation leader, middle group and end section. Using multiple sensitivity analysis approaches, we show that the indicator reacts robustly to different weights within these country groups. While leading countries like Switzerland, the USA and the Nordic countries have an innovation system with high scores and ranks in every sub indicator, the middle group consisting among others of Germany Japan, the UK and France, can be characterized by higher variation within ranks. In the end section, countries like Italy and Spain have bad scores for almost all indicators.
    Keywords: National systems of innovation, composite indicators, ranking
    JEL: O30 C81 H52
    Date: 2011
  16. By: Mazza, Jacopo (University of Amsterdam); Hartog, Joop (University of Amsterdam)
    Abstract: Using an internet collected dataset, we will provide some empirical evidence on the information that Dutch high school students possess before their decision on tertiary education participation. The sample is prone to selective participation and high attrition, but we detect little systematic effects and inconsistent reporting of probability distribution is not more frequent than in controlled settings. We find little support for patterns that one would expect from individuals having private information. Girls expect substantially lower earnings in all schooling scenarios, but implicit rate of returns do not differ from those anticipated by boys. We find no evidence of expected risk compensation.
    Keywords: wage expectations, wage risk, risk compensation
    JEL: J24 J31 I20
    Date: 2011–05
  17. By: Andersen, Torben (University of Aarhus)
    Abstract: Flexicurity labour markets are characterised by flexible hiring/firing rules, generous social safety net, and active labour market policies. How can such labour markets cope with the consequences of the Great Recession? Larger labour shedding is to be expected and this strains the social safety net and increases the demands on active labour market policies. This paper takes a closer look at the labour market consequences of the crisis for Denmark. It is found that employment adjustment is not particularly large in international comparison, although it has more weight on the extensive (number of employees) than the intensive (hours) margin. The level of job creation remains high, although job creation is pro-cyclical and job-separation counter-cyclical. As a consequence most unemployment spells remain short. This is critical since a persistent increase in unemployment will affect the financial balance of the model severely. Comparative evidence does not, however, indicate that flexicurity markets are more prone to persistence. Crucial for this is the design of the social safety net and in particular the active labour market policy. However, the larger inflow into activation raises questions concerning the possibility of maintaining the efficiency of the system.
    Keywords: flexicurity, employment protection, unemployment insurance, active labour market policy
    JEL: J01
    Date: 2011–05
  18. By: Stephen Machin; James Vernoit
    Abstract: In this paper, we study a high profile case - the introduction of academy schools into the English secondary school sector ‐ that has allowed schools to gain more autonomy and flexible governance by changing their school structure. We consider the impact of an academy school conversion on their pupil intake and pupil performance and possible external effects working through changes in the pupil intake and pupil performance of neighbouring schools. These lines of enquiry are considered over the school years 2001/02 to 2008/09. We bypass the selection bias inherent in previous evaluations of academy schools by comparing the outcomes of interest in academy schools to a specific group of comparison schools, namely those state‐maintained schools that go on to become academies after our sample period ends. This approach allows us to produce a well balanced treatment and control group. Our results suggest that moving to a more autonomous school structure through academy conversion generates a significant improvement in the quality of their pupil intake and a significant improvement in pupil performance. We also find significant external effects on the pupil intake and the pupil performance of neighbouring schools. All of these results are strongest for the schools that have been academies for longer and for those who experienced the largest increase in their school autonomy. In essence, the results paint a (relatively) positive picture of the academy schools that were introduced by the Labour government of 1997‐2010. The caveat is that such benefits have, at least for the schools we consider, taken a while to materialise.
    Keywords: Academies, pupil intake, pupil performance
    JEL: I20 I21 I28
    Date: 2011–04
  19. By: Meghir, Costas (Yale University and University College London); Palme, Mårten (Dept. of Economics, Stockholm University); Schnabel, Marieke (University College London)
    Abstract: The Swedish comprehensive school reform implied an extension of the number of years of compulsory school from 7 or 8 to 9 for the entire nation and was implemented as a social experiment by municipality between 1949 and 1962. A previous study (Meghir and Palme, 2005) has shown that this reform significantly increased the number of years of schooling as well as labor earnings of the children who went through the post reform school system, in particular for individuals originating from homes with low educated fathers. This study estimates the impact of the reform on criminal behavior: both within the generation directly affected by the reform as well as their children. We use census data on all born in Sweden between 1945 and 1955 and all their children merged with individual register data on all convictions between 1981 and 2008. We find that the educational reform decreased crime substantially for men who were directly affected by it. We also find that the crime rate declined for the sons of those fathers directly affected by the new educational system; we interpret this results as implying that improved education increased resource and parenting quality, leading to improved child outcomes.
    Keywords: Comprehensive school; economics of crime; returns to education; returns to human capital
    JEL: I20 I21 I28 K42 N34
    Date: 2011–05–19
  20. By: Agnese, Pablo (IESE Business School); Salvador, Pablo F. (Universidad Nacional de Cuyo)
    Abstract: This paper analyses the labour markets of Spain and Ireland, which have experienced a severe downturn in the recent global crisis as reflected by the largest increases in their unemployment rates among other developed economies. Spain and Ireland might seem at first to feature very different labour markets, which go from very tight to very flexible labour conditions. Our analysis, however, goes beyond this simplistic argument and brings to light the strong commonalities that seem to have been hidden underground. We estimate a dynamic multi-equation structural model for each country, and then offer two sets of dynamic simulations which account for the swings of the unemployment rates before and after the 2007 crisis. Our results suggest looking beyond the degree of flexibility of both labour markets, just to focus instead on other variables usually neglected by more conventional approaches. In particular, such variables as the growth of capital stock, the growth of labour productivity, and demographics, succeed in explaining a great part of the changes in unemployment in both countries.
    Keywords: unemployment dynamics, structural multi-equation models, chain reaction theory, simulations, PIGS
    JEL: E24 J21 E22 C32
    Date: 2011–05

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