nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2012‒06‒13
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Job Market Polarization and Employment Protection in Europe By Barbara Pertold-Gebicka
  2. Relative Income Poverty among Children in Rich Countries By Jonathan Bradshaw; Leonardo Menchini; Yekaterina Chzhen; Gill Main; Bruno Martorano; Chris De Neubourg; UNICEF Innocenti Research Centre
  3. Marriage Stability, Taxation and Aggregate Labor Supply in the U.S. vs. Europe By Chakraborty, Indraneel; Stepanchuk, Serhiy; Holter, Hans A.
  4. Internet Offer Prices for Flats and Their Determinants: A Cross Section of Large European Cities By Konstantin A. Kholodilin
  5. Taxation and Labor Force Participation: The Case of Italy By Colonna, Fabrizio; Marcassa, Stefania
  6. Fishing in the same pool: Export strengths and competitiveness of China and CESEE at the EU-15 Market By Christian Schitter; Maria Silgoner; Katharina Steiner; Julia Wörz
  7. How wide is the Mediterrenean? By Georg Zachmann; Mimi Tam; Lucia Granelli
  8. EU Enlargement and Agro-Food Export Performance on EU Market Segments By Imre Fert‹; ætefan Bojnec
  9. How do Laffer curves differ across countries? By Mathias Trabandt; Harald Uhlig
  10. Trust and innovation activity in European regions: A geographic instrumental variables approach By Schild, Christopher-Johannes
  11. Estimating Heterogeneous Returns to Education in Germany via Conditional Heteroskedasticity By Nils Saniter
  12. Ageing and Employability. Evidence from Belgian Firm-Level Data By Mariann RIGO; Vincent VANDENBERGHE; Fabio WALTENBERG
  13. Unemployment Duration of Spouses: Evidence From France By Marcassa, Stefania
  14. Urban Regions in Europe – Preconditions and Strategies for Growth and Development in the Global Economy By Gråsjö, Urban; Karlsson, Charlie
  15. Networks and selection in international migration to Spain By Neubecker, Nina; Smolka, Marcel; Steinbacher, Anne
  16. Intertemporal Income Shifting in Expectation of Lower Corporate Tax Rates: The Tax Reforms in Central and Eastern Europe By Boryana Madzharova
  17. National minimum wage and labour market outcomes of young workers By Jan Fidrmuc; Juan de Dios Tena
  18. The Relative Efficiency of Active Labour Market Policies: Evidence From a Social Experiment and Non-Parametric Methods By Vikström, Johan; Rosholm, Michael; Svarer, Michael
  19. Sexual orientation and social exclusion in Italy By Botti, Fabrizio; D'Ippoliti, Carlo
  20. Stimulating Different Types of Eco-Innovation in the UK: Government Policies and Firm Motivations By Pelin Demirel; Effie Kesidou

  1. By: Barbara Pertold-Gebicka (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Although much attention has been paid to the polarization of national labor markets, with employment and wage growth occurring in both low- and high- but not middle-skill occupations, there is little consistent evidence on cross-country differences in this process. I analyze job polarization in 12 European countries using an occupational skill-intensity measure, which is independent of country-specific labor supply conditions. Extensive cross-country differences in the extent of polarization correspond to variation in economic conditions and to dissimilarities in the employment protection legislation.
    Keywords: polarization, employment protection, skill requirements, occupational structure
    JEL: J21 J24 K31
    Date: 2012–06–06
  2. By: Jonathan Bradshaw; Leonardo Menchini; Yekaterina Chzhen; Gill Main; Bruno Martorano; Chris De Neubourg; UNICEF Innocenti Research Centre
    Abstract: This paper presents and discusses child relative income poverty statistics for 35 economically advanced countries, representing all the members of the European Union, Australia, Canada, Iceland, Japan, New Zealand, Switzerland and the United States. As most of the data refer to the year 2008, the results partly reflect the initial impact of the global economic crisis as well as government responses. According to the data, Nordic countries and the Netherlands present the lowest child relative poverty levels, while Japan, the United States, most of the Southern European countries and some of the new EU member states have among the highest. Several factors are associated with the risk of poverty, such as demographic composition, educational level of household members, labour conditions, but the extent to which these factors influence the risk of poverty vary considerably across countries. Lastly, in several countries the role of government is found to be highly important in reducing child poverty.
    Keywords: child poverty; child well-being; employment; income household; industrialized countries;
    JEL: A1
    Date: 2012
  3. By: Chakraborty, Indraneel (Department of Economics); Stepanchuk, Serhiy (Magyar Nemzeti Bank); Holter, Hans A. (Department of Economics)
    Abstract: Americans work more than Europeans. Using micro data from the U.S. and 17 European countries, we study the contributions from demographic subgroups to these aggregate level dierences. We document that women are typically the largest contributors to the discrepancy in work hours. We also document a negative empirical correlation between hours worked and dierent measures of taxation, driven by men, and a positive correlation between hours worked and divorce rates, driven by women. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms on labor supply: (i) dierences in marriage stability and (ii) dierences in tax systems. We calibrate the model to U.S. data and study how labor supply in the U.S. changes as we introduce European tax systems, and as we replace the U.S. divorce and marriage rates with their European equivalents. We nd that the divorce and tax mechanisms combined explain 58% of the variation in labor supply between the U.S. and the European countries in our sample.
    Keywords: Aggregate Labor Supply; Taxation; Marriage; Divorce; Heterogeneous Households
    JEL: E24 E62 H24 H31 J21 J22
    Date: 2012–05–27
  4. By: Konstantin A. Kholodilin
    Abstract: In this paper, we construct a data set of Internet offer prices for flats in 48 large European cities from 24 countries. The data are collected in January - April 2012 from 33 websites, where the advertisements of flats for sale are placed. Using these data we investigate the determinants of the flat prices. Four factors are found to be relevant for the flats' price level: income per capita, population density, unemployment rate, and Gini index. The results are robust both to excluding variables and to applying two alternative estimation techniques: OLS and quantile regression. Based on our estimation results we are able to identify the cities, where the prices are overvalued, and those, where the prices are undervalued. This is a useful information that allows analyzing and comparing the housing markets in large European cities.
    Keywords: Internet ads, flats' prices, large European cities, fundamental prices
    JEL: C21 R31
    Date: 2012
  5. By: Colonna, Fabrizio; Marcassa, Stefania
    Abstract: Italy has the lowest labor force participation of women among European countries. Moreover, the participation rate of married women is positively correlated to their husbands’ income. We show that a high tax schedule together with tax credits and transfers raise the burden of two-earner households, generating disincentives to work. We estimate a structural labor supply model for women, and use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems. We find that joint taxation implies a drop in the participation rate. Conversely, working tax credit and gender-based taxation boost it, with the effects of the former concentrated on low educated women.
    Keywords: female labor force participation; Italian tax system; second earner tax rate; joint taxation; gender-based taxation; working tax credit
    JEL: J21 J22 H31
    Date: 2012–06
  6. By: Christian Schitter; Maria Silgoner; Katharina Steiner; Julia Wörz
    Abstract: We investigate the impact of the emergence of China as a global competitor on the trade performance of Central, Eastern and Southeastern European (CESEE) countries at the EU-15 market. The paper takes a comprehensive approach in terms of empirical methods and data. We analyze export growth, export market shares, extensive and intensive margins and the number of trade links, applying highly disaggregated data at the 6 digit HS level over the period 1995 – 2010. We show that the most contested markets are those for capital goods and transport equipment, product categories where both regions have gained market shares and comparative advantage. We show that the number of trade links at the product level where both regions are active has increased substantially, indicating intensified competition. At the same time hardly any trade links were lost, which points against cut-throat competition between CESEE and China. The decomposition of export growth along the extensive versus the intensive margin shows that in line with the literature, the deepening of already existing trade relationships (i.e. the intensive margin) contributed most strongly export growth in both regions, whereas the contribution of new trade links (i.e. the extensive margin) had only a minor contribution, apart from the instance of EU accession which boosted the extensive margin considerably. We further decompose intensive margin growth into demand related structural effects and a supplier related competitiveness effect. Both the CESEE region and China successfully intensified their trade linkages above all as a result of their outstanding competitiveness as shown by the econometric shift-share analysis. While this suggests that both regions pursue a able export strategy, further diversification of production towards promising new industries and markets will become increasingly crucial for both, especially in face of projected slower EU-15 market growth in the longer run.
    Keywords: competitiveness, trade, sectoral market shares, shift-share analysis, Central, Eastern and Southeastern Europe, China
    JEL: F14 F15 O57
    Date: 2012–05
  7. By: Georg Zachmann; Mimi Tam; Lucia Granelli
    Abstract: This policy contribution provides up-to-date evidence of the strong heterogeneity in the relationships between the five biggest EU economies with the Southern Mediterranean Countries (SMCs). Algeria, Morocco and Tunisia are still strongly tied to France, Italy and Spain, in terms of investments, financial flows and migration. This pattern is in line with the pattern of sizable French and Spanish official bilateral development assistance for Algeria, Morocco, and Tunisia. However, the economic connection of Germany, the UK and the US to the western SMCs is negligible. German and US bilateral development assistance is focused in Egypt, while the four other SMCs appear not to be priorities for non-Mediterranean EU countries. These differences cannot be explained by geographical distance alone. The unbalanced economic relationship of the SMCs with a small number of European countries risks exposing the SMCs to shocks in partner countries. Stronger economic ties also results in a higher degree of mutual political attention, as exemplified by bilateral development assistance that flows more strongly between countries with strong economic links. EU external policy is still largely driven by member statesâ?? interests. Hence building economic ties between the SMCs and non-traditional EU partners could both improve the SMCsâ?? external economic relationships, and make the SMCsâ?? political relationship with the EU more resilient. Bruegel gratefully acknowledges the support of the German Marshall Fund
    Date: 2012–05
  8. By: Imre Fert‹ (Institute of Economics, Hungarian Academy of Sciences and Corvinus University of Budapest); ætefan Bojnec (University of Primorska, Faculty of Management, Slovenia)
    Abstract: This paper examines the impact of EU enlargement on agro-food export performance across 12 new EU member states and 5 newly independent states in the EU markets covering the period 1999-2007. The performance is examined by duration of export and hazard model. We find larger duration for the agro-food exports from the new EU member states. The results confirm gains from the eastward EU enlargement and governance on export increases and longer duration for exporting higher value-added specialized consumer-ready food and more competitive niche agro-food products.
    Keywords: EU enlargement, governance, agro-food export duration, hazard model, niche products
    JEL: F14 F15 Q17 P27
    Date: 2012–02
  9. By: Mathias Trabandt; Harald Uhlig
    Abstract: We seek to understand how Laffer curves differ across countries in the US and the EU-14, thereby providing insights into fiscal limits for government spending and the service of sovereign debt. As an application, we analyze the consequences for the permanent sustainability of current debt levels, when interest rates are permanently increased e.g. due to default fears. We build on the analysis in Trabandt and Uhlig (2011) and extend it in several ways. To obtain a better fit to the data, we allow for monopolistic competition as well as partial taxation of pure profit income. We update the sample to 2010, thereby including recent increases in government spending and their fiscal consequences. We provide new tax rate data. We conduct an analysis for the pessimistic case that the recent fiscal shifts are permanent. We include a cross-country analysis on consumption taxes as well as a more detailed investigation of the inclusion of human capital considerations for labor taxation.
    Date: 2012
  10. By: Schild, Christopher-Johannes
    Abstract: For a cross-section of 123 European regions, a positive causal effect of generalised trust on innovation activity is identified using a set of geographic instrumental variables from climate and soil data. The geographic instrumental variables are defined and discussed. The popular explanation for spatial clustering of innovation by 'interregional knowledge spillovers' is empirically tested. It is found that spatial clustering of innovation activity can be better explained by a positive in uence of trust on innovation combined with the fact that neighboring regions typically show similar levels of trust. --
    Keywords: Social Capital,Trust,Innovation,Regional Economics,Europe
    JEL: O31 R11 R12 Z13
    Date: 2012
  11. By: Nils Saniter
    Abstract: In this paper I investigate the causal returns to education for different educational groups in Germany by employing a new method by Klein and Vella (2010) that bases identification on the presence of conditional heteroskedasticity. Compared to IV methods, key advantages of this approach are unbiased estimates in the absence of instruments and parameter interpretation that is not bounded to local average treatment effects. Using data from the German Socio-Economic Panel Study (SOEP) I find that the causal return to education is 8.5% for the entire sample, 2.3% for graduates from the basic school track and 11% for graduates from a higher school track. Across these groups the endogeneity bias in simple OLS regressions varies significantly. This confirms recent evidence in the literature on Germany. Various robustness checks support the findings.
    Keywords: Return to education, wage equation, control function approach, second moment exclusion restriction
    JEL: C3 I21 J31
    Date: 2012
  12. By: Mariann RIGO (Department of Economics, Central European University, Budapest and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Vincent VANDENBERGHE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Fabio WALTENBERG (Departamento de Economia and Centro de Estudos sobre Desigualdade e Desenvolvimento (CEDE), Universidade Federal Fluminense (UFF), Brazil)
    Abstract: The Belgian population is ageing due to demographic changes; so does the workforce of firms active in the country. Such a trend is likely to remain for the foreseeable future. And it will be reinforced by the willingness of public authorities to expand employment among individuals aged 50 or more. But are older workers employable? The answer depends to a large extent on the gap between older workers’ productivity and their cost to employers. To address this question we use a production function that is modified to reflect the heterogeneity of labour with workers of different age potentially diverging in terms of marginal products. Using unique firm-level panel data we produce robust evidence on the causal effect of ageing on productivity (value added) and labour costs. We take advantage of the panel structure of data and resort to first-differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firms’ age-mix choices in the short run) using i) the structural approach suggested by Ackerberg, Caves & Frazer (2006), ii) alongside more traditional system-GMM methods (Blundell & Bond, 1998) where lagged values of labour inputs are used as instruments. Our results indicate a negative impact of larger shares of older workers on productivity that is not compensated by lower labour costs, resulting in a lower productivity-labour costs gap. An increment of 10%-points of their share causes a 1.3-2.8% contraction of this gap. We conduct several robustness checks that largely confirm this result. This is not good news for older individuals’ employability and calls for interventions in the Belgian private economy aimed at combating the decline of productivity with age and/or better adapting labour costs to age-productivity profiles.
    Keywords: Ageing, Old Labour Productivity and Employability, Panel Data Analysis
    JEL: J24 C33 D24
    Date: 2012–06–04
  13. By: Marcassa, Stefania
    Abstract: This paper analyzes the conditional probability of leaving unemployment of French married individuals from 1991 to 2002. We find that the effect of spousal labor income on unemployment duration is asymmetric for men and women. In particular, the probability of men to find a job is increasing in wife labor income, while it is decreasing in husband’s earnings for women. To adjust for endogenous selection into marriage, we use the occupation of the fathers in-law as an instrumental variable for the spousal wage. Finally, we show that introducing a breadwinner stigma in a joint job search model generates the positive correlation observed for men in the data.
    Keywords: unemployment duration; hazard models; labor income; marriage; joint search theory
    JEL: J12 J64 J65
    Date: 2012–06
  14. By: Gråsjö, Urban (University West); Karlsson, Charlie (Jönköping International Business School)
    Abstract: Nowadays it is well-established fact that urban regions and large ones in particular are crucial for promoting creativity, innovation and subsequent economic growth in the economy. There-fore, it is important to focus policies in Europe on how to improve the existing conditions of urban regions so they can function as engines of economic growth. The purpose of this paper is to discuss policies needed to meet the current urban challenges and to make urban regions in Europe more competitive. A problem with current spatial policies at the EU-level as well as at the national level in most countries is that the policies mainly ignore functional urban re-gions and instead focus on administrative regions. A reason for this is that there is often no political body with authority over the whole functional urban region. In this paper, we present ideas for a new type of spatial policies in Europe focusing on innovation and growth. For in-stance, there is a need to take measures to increase the density of population and companies in functional urban regions and to improve transport infrastructure to increase the geographical extension of functional regions. There is also a need to develop more urban regions into real innovation nodes by developing more elite universities with a proper R&D funding and a ca-pacity to compete with the best universities in the US. Another focus must be on increased investments in higher education as well as policies aiming at increasing the attractiveness of urban regions in terms of housing infrastructure and supply of amenities.
    Keywords: Urban regions; Urban policy; Growth; Innovation; Europe
    JEL: O18 R11 R58
    Date: 2012–06–01
  15. By: Neubecker, Nina; Smolka, Marcel; Steinbacher, Anne
    Abstract: This paper analyzes the role of ethnic communities in shaping the recent immigration boom to Spain. We find that ethnic communities exerted a strong positive effect on the scale and a strong negative effect on the skill structure of this immigration. Unlike previous studies, we explicitly acknowledge similarities among final migration destinations and thus partly relax the independence of irrelevant alternatives assumption. We strengthen our causal interpretation by controlling for observed and unobserved heterogeneity in bilateral migration costs, and by adopting an instrumental variables approach. Our results suggest that previous estimates of the scale effect are upward-biased by approximately 50%. --
    Keywords: International migration,Ethnic networks,Family and friends effect,Skill structure of migration,Spain
    JEL: F22
    Date: 2012
  16. By: Boryana Madzharova
    Abstract: This paper examines if firms shift income out of years with high corporate tax rates into years when tax cuts are anticipated. Such intertemporal shifting can be one explanation for the stability of corporate tax revenues in Central and Eastern Europe, despite the major decline in the corporate tax rates and overall narrowing of the tax base starting in the late 90s. Using firm-level panel data for Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia from 1999 to 2005, the estimates indicate that the lower corporate tax rates induced a considerable increase in taxable income. Most of this increase, however, was due to short-term shifting of income to years with lower tax rates leading to non-transitory responses ranging from zero to .151, depending on the specification employed. Splitting the sample by firm size shows that income shifting is an appealing tax saving strategy for small and to a lesser extent medium-sized enterprises, but not for big firms. A further disaggregation by country reveals that the driving country behind the results is Romania.
    Keywords: corporate tax; income shifting; tax reforms; Central and Eastern Europe;
    JEL: H25 H32
    Date: 2012–05
  17. By: Jan Fidrmuc; Juan de Dios Tena
    Abstract: We analyze the impact of the national minimum wage (NMW) in the UK on the employment of young workers. We utilize the regression discontinuity approach to assess the impact of age-related increases in the NMW when workers turn 18 and 22. The previous literature has found little evidence of an adverse impact of the NMW on the UK labour market, both when considering the age-related increases or the regular annual increases that apply to all NMW rates. We fail to find any effect of turning 22 on employment. However, we find a significant and negative effect of male workers turning 21. We also find a negative effect for both genders upon turning 18. The age-related NMW rates may have an adverse effect on employment of young workers, with this effect possibly occurring already well in advance of reaching the threshold age.
    Keywords: Minimum wage, Employment, Unemployment, Young workers
    Date: 2012–06
  18. By: Vikström, Johan (IFAU-Uppsala); Rosholm, Michael (Department of Economics, Aarhus School of Business); Svarer, Michael (Department of Economics, Aarhus School of Business)
    Abstract: We re-analyze the effects of a Danish active labour market program social experiment, that included a range of sub-treatments, including monitoring, job search assistance and training. Previous studies have shown that the overall effect of the experiment is positive. We apply newly developed non-parametric methods to determine which of the individual policies that explains the positive effect. The use of non-parametric methods to separate sub-treatment effects is important from a methodological point of view, since the alternative, namely parametric/distributional assumptions, is in conflict with the concept of experimental evidence. Our results are highly relevant in a policy perspective, as optimal labour market policy design requires knowledge on the effectiveness of specific policy measures
    Keywords: Active labour market policy; treatment effect; non-parametric bounds
    JEL: C14 C41 C93
    Date: 2011–03–13
  19. By: Botti, Fabrizio; D'Ippoliti, Carlo
    Abstract: This work explores the role of discrimination in shaping individuals’ lives and opportunities, with specific respect to sexual orientation. The role of sexual orientation in explaining earning differences has been increasingly emphasized in empirical literature on discrimination mainly as a result of the growing availability of data sources on gays and lesbian populations. Available evidence predominantly converges on the one hand on the identification of discrimination treatments for gays and positive wage differential for lesbian women with respect to heterosexual counterparts. On the other hand, disagreement pervades interpretations of the predominant above-described labour market outcome. In trying to move beyond such conflicting views, we consider a holistic approach to social exclusion, defined as individuals’ ability to fully participate to social life by examining five domains: monetary poverty, labour market attachment, housing conditions, subjective well-being, and education. Three samples of different waves of the Banca d’Italia “Survey on household income and wealth” (SHIW - 2006, 2008 and 2010) were pooled in order to perform the empirical analysis on a reasonably sized sample of heterosexual couples identified according to a cohabitation criteria. Following the SHIW characteristics and definition of household, we are able to differentiate homosexual couples belonging to a sub-population of out same-sex couples from those who are not openly out about their homosexual relationship. We develop an understanding of social exclusion as a non-dichotomous concept (that is, one is not necessarily “included” or “excluded”, but a continuum of intermediate conditions exist) through fuzzy analysis techniques and develop a synthetic index of inclusion/exclusion as well as a number of partial indexes, composed of several variables pertaining to a certain domain. Overall indicators of social exclusion are examined for the full sample and for the sub-sample of workers only, comparing individuals cohabiting in same-sex couples with heterosexual counterparts. Our results point out that a significant and non-negligible portion of the social exclusion suffered by lesbian and gay couples cannot be accounted for by observable factors and may therefore be attributed to the impact of discrimination. Coherently with the existing literature, we find a differentiated impact on gay men and lesbian couples. However, and possibly more relevantly, we also find significant differences between the couples of “out” homosexual individuals and those composed of “closeted” individuals.
    Keywords: Sexual orientation; social inclusion; fuzzy analysis
    JEL: J71 D10 I32 B54
    Date: 2012–02–12
  20. By: Pelin Demirel (Nottingham University Business School, Nothingham University); Effie Kesidou (Nottingham University Business School, Nothingham University)
    Abstract: In this paper, we adopt a recent OECD framework and examine the role of external policy tools and internal firm specific factors for stimulating three different types of eco-innovations that range on a spectrum of lower to higher technological and environmental impact: End-of-Pipeline Pollution Control Technologies, Integrated Cleaner Production Technologies and Environmental R&D. Using a novel firm-level dataset from a DEFRA survey, we estimate a Tobit model, which provides empirical evidence showing that these eco-innovations are motivated by different external policy tools and internal firm specific factors. Our findings indicate that End of Pipeline Technologies and Integrated Cleaner Production Technologies are mainly driven by equipment upgrade motives with a view of improving efficiency while environmental regulations are effective in stimulating the End-of-Pipeline technologies and Environmental R&D. Interestingly, alongside government induced regulations, we find that market factors, mainly motivated by cost savings, are effective in driving Environmental R&D. Finally, ISO14001 certification is effective in strengthening the positive impact of environmental management systems on both End-of-Pipeline technologies and Environmental R&D while CSR policies have no significant impact on motivating any of the eco-innovations.
    Keywords: Cleaner Production, Environmental Regulation, Environmental Taxes, Environmental Management Systems, Eco-R&D, ISO14001
    Date: 2012–05

This nep-eur issue is ©2012 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.