nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2012‒12‒10
eighteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. GINI DP 68: Material Deprivation in Europe By Calvert, E. (Emma); Brian Nolan
  2. Immigration, jobs and employment protection: evidence from Europe before and during the Great Recession By Francesco D'Amuri; Giovanni Peri
  3. Carbon management: Evidence from case studies of German firms under the EU ETS By Heindl, Peter; Lutz, Benjamin
  4. GINI DP 52: Virtuous Cycles or Vicious Circles? The Need for an EU Agenda on Protection, Social Distribution and Investment By Bea Cantillon
  5. The Homeownership Rate among the Elderly and the Life Cycle Hypothesis:European Evidence Using Individual and Household Data By Joaquín Alegre Martín; Llorenç Pou Garcias
  6. Disentangling water usage in the European Union: A decomposition analysis By Valeria, Di Cosmo; Marie, Hyland; Maria , LLop
  7. GINI DP 56: Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US By Ive Marx; Sarah Marchal; Brian Nolan
  8. GINI DP 61: Expansion of Schooling and Educational Inequality in Europe: Educational Kuznets Curve Revisited By Elena Meschi; Francesco Scervini
  9. Competition in Germany's minute reserve power market: An econometric analysis By Haucap, Justus; Heimeshoff, Ulrich; Jovanovic, Dragan
  10. Tourism and regional growth in Europe By Raffaele Paci; Emanuela Marrocu
  11. GINI DP 55: Struggle for Life: Social Assistance Benefits, 1992-2009 By Mechelen, N. (Natascha) van; Sarah Marchal
  12. Minimum Wages and Wage Inequality: Some Theory and an Application to the UK By Richard Dickens; Alan Manning; Tim Butcher
  13. GINI Intermediate Report WP 3: Drivers of Growing Inequality By Gabriele Ballarino; Francesco Bogliacino; Michela Braga; Massimiliano Bratti; Daniele Checchi; Antonio Filippin; Virginia Maestri; Elena Meschi; Francesco Scervini
  14. Which Pay for what Performance? Evidence from Executive Compensation in Germany and the United States By Moritz Heimes; Steffen Seemann
  15. Partisan targeting of inter-governmental transfers & state interference in local elections: evidence from Spain By Marta Curto-Grau (Universitat de Barcelona); Albert Sole-Olle (Universitat de Barcelona); Pilar Sorribas-Navarro(Universitat de Barcelona)
  16. Public support for the European car industry: An integrated analysis By Grigolon, Laura; Leheyda, Nina; Verboven, Frank
  17. Deal or no deal? Consensual arrangements as an instrument of European competition policy By Budzinski, Oliver; Kuchinke, Björn A.
  18. On the impact of the euro on international tourism By María Santana Gallego; Jorge Vicente Pérez Rodríguez; Francisco José Ledesma Rodríguez

  1. By: Calvert, E. (Emma); Brian Nolan (School of Applied Social Science, University College Dublin)
    Abstract: Introduction Most research on poverty in Europe employs income to distinguish the poor, with a great deal of research and debate on how best to establish an income cut-off – examples from a very large literature include Atkinson, Rainwater and Smeeding (1995) and the OECD’s recent comparative studies Growing Unequal (2008) and Divided We Stand (2011). In parallel, though, non-monetary indicators of living standards and deprivation have also been developed and investigated, notably in Townsend’s (1979) pioneering work using them to derive and validate an income poverty threshold, and Mack and Lansley’s (1985) attempt to directly identify those experiencing exclusion in Britain. Since then an extensive research literature on measures of material deprivation in OECD countries has grown up, with the valuable review by Boarini and Mira d’Ercole (2006) listing over a hundred studies. A much more limited set of studies employs non-monetary indicators to capture and analyse poverty and exclusion in a comparative perspective, in particular the countries of the European Union (EU) before and after enlargement (This research is reviewed, and a full set of references given, in Nolan and Whelan, 2011, Chapter 2).These rely on indicators from the European Community Household Panel Survey (ECHP) organised by Eurostat and carried out in most of the (then) EU member states from the mid-1990s to 2001, and from the EU-Statistics on Income and Living Conditions (EU-SILC) data-gathering framework which replaced the ECHP. ...
    Date: 2012–09
  2. By: Francesco D'Amuri (Bank of Italy); Giovanni Peri (UC Davis)
    Abstract: In this paper we analyse the impact of immigrants on the type and quantity of natives’ jobs. We use data on fifteen Western European countries during the 1996-2010 period. We find that immigrants, by taking up manual-routine type of occupations pushed natives towards more “complex” (abstract and communication) jobs. This job upgrade was associated with a 0.7% increase in native wages for a doubling of the immigrants’ share. These results are robust to the use of an IV strategy based on the past settlement of immigrants across European countries. The job upgrade slowed, but did not come to a halt, during the Great Recession. We also document the labour market flows behind it: the complexity of jobs offered to new native hires was greater than that of lost jobs. Finally, we find evidence that the reallocation was larger in countries with more flexible labour laws.
    Keywords: immigration, jobs, task specialization, employment protection laws, Europe
    JEL: J24 J31 J61
    Date: 2012–10
  3. By: Heindl, Peter; Lutz, Benjamin
    Abstract: This paper examines the management practices of German firms with obligations under the EU Emissions Trading Scheme (EU ETS) based on six structured in-depth interviews with managers of firms from different industries and based on survey data. The paper sheds light on management and trading practices, abatement behaviour, and the impact of the EU ETS on long-term decisions, such as investment decisions or innovative capacity. The aim is to provide information on firm-internal management processes related to the EU ETS and to strengthen intuition for microeconomic consequences of greenhouse gas regulation in a cap-and-trade scheme. The analysis reveals that management practices in the EU ETS are mainly driven by emission levels, firm size, pre-existing management structures and production patterns. While larger emitters (about 100,000 tCO2 per year or larger) are perfectly capable to carry out all relevant tasks, smaller emitters behave more passively due to transaction costs and lower expected return of transactions. Our analysis suggests that institutional responds to regulation should be taken into account for the design of greenhouse gas regulation. --
    Keywords: Carbon Management,Emissions Trading,EU ETS
    JEL: L60 Q50 M11
    Date: 2012
  4. By: Bea Cantillon (Departement Sociale Wetenschappen, Universiteit van Antwerpen, Centrum voor Sociaal Beleid Herman Deleeck)
    Abstract: Introduction In the decade leading to the present crisis – despite years of growing employment and increasing average incomes – Europe did not succeed in making any substantial progress in combating relative income poverty, particularly among the working age population. Certainly, Europeans became richer and material deprivation declined. Similarly, the number of Europeans living with an income below the EU-wide poverty line decreased. However, if we take the perspective of relative income poverty defined at the national level the proportion of individuals living with an income lower than 60 per cent of the median income in their country remained invariably at the level of approximately16 per cent of European population. Of course, underneath the surface of a apparent stasis there were divergent national trends. Increases of at-risk-of-poverty were noticeable in the Nordic countries. There were clear and consistent decreases in many of the new Member States, while other countries displayed no significant change. On average, however, on the national escalators of income growth and employment rise the discrepancy between the rich and the poor did not decrease. ...
    Date: 2012–07
  5. By: Joaquín Alegre Martín (Universitat de les Illes Balears); Llorenç Pou Garcias (Universitat de les Illes Balears)
    Abstract: One of the central predictions of the Life Cycle Hypothesis is that individuals run down their wealth during retirement. Although housing wealth is the largest component of total household wealth in most countries, empirical evidence supporting the decumulation hypothesis is mixed. In this paper we examine the housing tenure decision by the aged with microdata at both a household and individual level. The results, based on data from the European Community Household Panel for thirteen European countries, show that for nearly all countries (except for Germany and Denmark), the homeownership rate among the elderly does not decline with age, rejecting the Life Cycle Hypothesis. The results are robust to the (household or individual) level at which the data is analysed. The estimates also show a significant cohort effect for most European countries, so that the later the year of birth, the higher the homeownership rate.
    Keywords: homeownership rate, the elderly, age-cohort effects, Life Cycle Hypothesis.
    JEL: D12 D91 R21
    Date: 2012
  6. By: Valeria, Di Cosmo; Marie, Hyland; Maria , LLop
    Abstract: The Water Framework Directive defines common objectives for water resources throughout the European Union (EU). Given this general approach to water preservation and water policy, the objective of this paper is to analyse whether common patterns of water consumption exist within Europe. In particular, our study uses two methods to reveal the reasons behind sectoral water use in all EU countries. The first method is based on an accounting indicator that calculates the water intensity of an economy as the sum of sectoral water intensities. The second method is a subsystem input-output model that divides total water use into different income channels within the production system. The application uses data from the year 2005 on water consumption in the production system of the 27 countries of the EU. From our analysis it emerges that EU countries are characterized by very different patterns of water consumption. Mediterranean and central/eastern European countries use water mainly for agriculture whereas northern European countries use it mainly for electricity, gas and water supply. In most countries, the water used by the fuel, power and water sector is consumed to satisfy domestic final demand. However, our analysis shows that for some countries exports from this sector are an important driver of water consumption. Focusing on the agricultural sector, the decomposition analysis suggests that water usage in Mediterranean countries is mainly driven by final demand for, and exports of, agricultural products, whereas domestic final demand is the main driver of water consumption in central/eastern European countries. Given these heterogeneous water consumption patterns, our analysis suggests that Mediterranean and central/eastern European countries should adopt specific water policies if water consumption in the European Union is to be efficient.
    Keywords: Water use; Subsystem input–output model; Water intensity; European Union
    JEL: N54 C67
    Date: 2012–11–15
  7. By: Ive Marx (Centre for Social Policy, University of Antwerp); Sarah Marchal (CSB , University of Antwerp); Brian Nolan (School of Applied Social Science, University College Dublin)
    Abstract: This paper focuses on the role of minimum wages, in conjunction with tax and benefit policies, in protecting workers against financial poverty. It covers 20 European countries with a national minimum wage and three US States (New Jersey, Nebraska and Texas). It is shown that only for single persons and only in certain countries do net income packages at minimum wage level reach or exceed the EU’s at-risk-of poverty threshold, which is set at 60 per cent of median equivalent household income in each country. For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage are below this threshold almost everywhere, usually by a wide margin. This remains the case despite shifts over the past decade towards tax relief and additional income support provisions for low-paid workers. We argue that there appear to be limits to what minimum wage policies alone can achieve in the fight against in-work poverty. The route of raising minimum wages to eliminate poverty among workers solely reliant on it seems to be inherently constrained, especially in countries where the distance between minimum and average wage levels is already comparatively small and where relative poverty thresholds are mostly a function of the dual-earner living standards. In order to fight in-work poverty new policy routes need to be explored. The paper offers a brief discussion of possible alternatives and cautions against ‘one size fits all’ policy solutions.
    Date: 2012–07
  8. By: Elena Meschi (Institute of Education ,Room 405, University of London); Francesco Scervini (Collegio Carlo Alberto, Università degli Studi, Torino)
    Abstract: This paper analyses the relationship between schooling expansion and educational inequality in a panel of developed countries over different birth cohorts. Compared to previous literature, we expand the comprehension of this relationship by exploiting the longitudinal dimension of our data and by focusing on different measures of inequality. We find evidence of a non-linear relationship between expansion and inequality of education and we argue that this evidence is complementary and not necessarily in contrast with the educational Kuznets curve found by previous studies. We also discuss how educational policies may influence educational inequality and we find that the length of compulsory education affects inequality only through its effect on average education, while school tracking shapes inequality independently of the level of education. JEL codes: I21, I24
    Keywords: education, inequality, Kuznets curve, panel data
    Date: 2012–09
  9. By: Haucap, Justus; Heimeshoff, Ulrich; Jovanovic, Dragan
    Abstract: The German reserve power market was subject to important regulatory changes in recent years. A new market design was created by synchronization and interconnection of the four control areas. In this paper, we analyze whether or not the reforms led to lower prices for minute reserve power (MRP). In contrast to existing papers, we use a unique panel dataset to account for unobserved heterogeneity between the four German regional markets. Moreover, we control for endogeneity by using weather data as instruments for electricity spot market prices. We find that the reforms were jointly successful in decreasing MRP prices leading to substantial cost savings for the transmission system operators. --
    Keywords: Competition,Frequency Control,Minute Reserve Power,Regulation,Productive Efficiency,Welfare
    JEL: C33 C36 L59 L94
    Date: 2012
  10. By: Raffaele Paci; Emanuela Marrocu
    Abstract: Tourism represents one of the most relevant and fast growing industry in the world and the economic literature has widely analysed at the country level the role of the international flows in the development process. However, it is essential to consider also the impact of domestic tourism as it constitutes the largest component and can significantly influence the growth process at the regional level. Therefore, the aim of this paper is to analyse the impact of both domestic and international tourism on the economic growth process for a wide set of 179 regions belonging to ten European countries, which are highly representative of total tourism flows in Europe. The econometric analysis is carried out for the period 1999-2009 and it is based on a spatial growth regression framework, where the growth rate of GDP per capita at the regional level depends on tourism flows in addition to the traditional production inputs like physical, human and technological capital. Besides controlling for the initial conditions, we also include covariates for geographical, industrial, social and institutional features of the regions. Results, robust to several robustness checks, show the positive effect of domestic and international tourism flows on regional growth.
    Keywords: regional economic growth; tourism flows; spatial dependence; Europe
    JEL: R11 L83 C31
    Date: 2012
  11. By: Mechelen, N. (Natascha) van; Sarah Marchal (CSB , University of Antwerp)
    Abstract: This paper looks at the level of the minimum income guarantees for able-bodied persons at working age and assesses benefit trends since the 1990s. Our dataset comprises 25 EU countries (EU27 except Cyprus and Malta), 3 American States (Nebraska, New Jersey and Texas) and Norway. The degree of welfare erosion is measured by three indicators: real benefit trends, benefit trends relative to the development of average wages and benefit trends relative to changes in median equivalent income. We therefore assess net disposable income of families relying on social assistance, taking account of the impact of i.a. child benefits and housing allowances. A central question in this paper is the extent to which trends in social assistance benefit packages are linked to the statutory mechanism that is being used to adjust benefit levels. It appears that most legal systems are quite insufficient to keep benefit levels in line with the general living standard. The broad picture that emerges is indeed one of eroding benefit levels relative to the general living standard, although the trend is less uniformly negative from 2001 onwards. In the 1990s we see the comparative level of welfare of social assistance recipients decline almost everywhere. In many countries social assistance payments have continued to decrease relative to average wages after 2001, although less uniformly so. In the countries where benefits did keep pace with average wages or median equivalent income, this was generally because governments (consciously) increased benefits over and above the evolution of the average living standard, either by a one-time reform, or through subsequent ad hoc raises.
    Date: 2012–07
  12. By: Richard Dickens (Department of Economics, University of Sussex, UK); Alan Manning (Centre for Economic Performance, London School of Economics, UK); Tim Butcher (Secretariat, Low Pay Commission, UK)
    Abstract: Research suggests that, at the levels set in countries like the US and the UK, minimum wages have little effect on employment but do have impacts on wage inequality. However we lack models that can explain these facts – this paper presents one based on imperfect labour markets. The paper also investigates the impact of the UK’s National Minimum Wage on wage inequality finding it can explain a sizeable part of the evolution of wage inequality in the bottom half of the distribution in the period 1998-2010. We also present evidence that the impact of the NMW reaches up to 40% above the NMW in 2010 which corresponds to the 25th percentile. These spillovers are larger in low-wage segments.
    Keywords: Minimum Wage, Wage Inequality
    JEL: J38
    Date: 2012–12
  13. By: Gabriele Ballarino (Dipartimento di Studi del Lavoro); Francesco Bogliacino (Escuela de Administración, Universidad Konrad Lorenz); Michela Braga (Facolta' di Scienze Politiche (DEAS), Universita' degli Studi di Milano); Massimiliano Bratti (Dipartimento di Scienze Economiche Aziendali e Stastistiche (DEAS), University of Milan); Daniele Checchi (Universita'degli Studi di Milano, Facolta'di Scienze); Antonio Filippin (Department of Economics and Business, University of Milan, IZA); Virginia Maestri (AIAS, Universiteit van Amsterdam); Elena Meschi (Institute of Education ,Room 405, University of London); Francesco Scervini (Collegio Carlo Alberto, Università degli Studi, Torino)
    Date: 2012–10
  14. By: Moritz Heimes (Department of Economics, University of Konstanz, Germany); Steffen Seemann (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper analyzes executive compensation in German and U.S. corporations for the period 2005-2009 including the financial crisis. We analyze the impact of stock market performance and accounting-based measures of firm performance on different compensation components. We find that only firm earnings explain total executive compensation in both samples while stock market performance does not. Cash bonus payments of German executives are explained by firm earnings and not by stock returns while U.S. bonuses are also determined by stock returns. Moreover, the sensitivity of cash bonuses to firm performance depends on firm risk and firm size. We also provide evidence that firms choose performance measures with low volatility. Finally, we find that pay-performance sensitivities are higher in the U.S. than in Germany, but have no robust explanation how long-term compensation such as company stock and options is granted in either country.
    Keywords: Pay for Performance, Executive Comepensation, Incentives
    JEL: G30 J33 M12
    Date: 2012–11–23
  15. By: Marta Curto-Grau (Universitat de Barcelona); Albert Sole-Olle (Universitat de Barcelona); Pilar Sorribas-Navarro(Universitat de Barcelona) (Universitat de Barcelona)
    Abstract: We examine whether state-level incumbents discriminate in the allocation of transfers in favour of local governments controlled by co-partisans, and whether the electoral prospects of local incumbents improve when they are aligned with the state incumbent. Using a new database covering around 3,000 Spanish municipalities during the period 2000-07 and a Regression Discontinuity design, we document a very strong and robust effect: in close races, municipalities aligned with the regional government obtain on average 83% more per capita transfers and their incumbents gain 10% more votes at the local elections. We also show that the effect of alignment is stronger: (i) when regional and local elections are held on the same day, (ii) in regions with less competitive regional elections, and (ii) in regions with more budget resources.
    Keywords: political parties, inter-governmental transfers, pork barrel politics
    JEL: D72 C2
    Date: 2012
  16. By: Grigolon, Laura; Leheyda, Nina; Verboven, Frank
    Abstract: We provide an overview of public support for the European car industry during the past decade. First, we identify the most relevant instruments of public support, and review their economic assessment. The European Commission increasingly recognizes the role of economic analysis in controlling public aid to the car industry, although the degree of economic assessment varies across different instruments of public support and individual state aid cases. Moreover, the state aid legislative framework is open to derogations and interpretations. In particular, the Temporary Framework, approved by the Commission to tackle the last fi;nancial and economic crisis de facto implied a relaxation of the state aid rules and foresaw no formal control of individual state aids. Second, we aim to estimate the amount of public support for European car manufacturers. Three factors complicate the overall quantification of public support for each instrument: (i) the Commission does not scrutinize, and hence does not quantify all public support measures; (ii) the available information depends on whether the state aid is granted to individual companies or in the form of general schemes; and (iii) the available information depends on whether the aid is granted in the form of a grant, soft loan or guarantee. Our lower bound estimate of state aid suggests that the aid declined over the pre-crisis period, but peaked at €1.2 billion as a response to the last financial and economic crisis in 2009. Perhaps even more strikingly, this state aid was combined with an unprecedented amount of public support granted through scrapping schemes of at least €4.0 billion, and loans from the European Investment Bank of €2.8 billion, or an equivalent of €400 million of aid element. In conclusion, the existence of multiple public support instruments at different levels may create coordination problems and a lack of transparency, in spite of the Commission's efforts. The lack of transparency in turn poses a challenge for the quantification of state aid and non-state aid support to any industry or sector. This paper provides a first step towards informing the policy debate on the effects of public support to the car sector, and also stimulates the academic interest in the subject of state aid, and - more generally - public transfers to companies. --
    Date: 2012
  17. By: Budzinski, Oliver; Kuchinke, Björn A.
    Abstract: Roughly during the last decade, European Competition Policy has undergone a series of fundamental changes. All four areas - cartel policy, merger policy, abuse control, and state aid control - have been subject to a modernization process, which led to a focus on analysing the effects of individual cases and established a tendency towards deciding each case on its individual merits. These changes can be understood as a move away from rule-based competition policy towards a case-by-case approach. The case-by-case approach especially includes consensual arrangements, so-called 'deals' between the competition authority and business companies. Therefore, this paper will discuss the pros and cons of 'deals' as an instrument of (European) competition policy. The paper's central focus lies on the economic analysis of the advantages and disadvantages of using consensual arrangements as a relevant instrument of European competition policy. With respect to European competition policy, we conclude that we need to issue a note of caution. From an economic perspective, an expansion of consensual elements necessarily walks hand in hand with a continual weakening of the protection of competition. Consumer welfare will not benefit from expanding the role and importance of consensual arrangements as a means of European competition policy. --
    Keywords: European competition policy,consensual arrangements,antitrust settlements,merger control,deals,political economics
    JEL: L40 K21 D02 P16
    Date: 2012
  18. By: María Santana Gallego (Universitat de les Illes Balears); Jorge Vicente Pérez Rodríguez (Universidad de Las Palmas de Gran Canaria); Francisco José Ledesma Rodríguez (Universided de La Laguna)
    Abstract: This paper studies the effect of the inception of the euro on the international tourism of the Eurozone. To do this, a gravity model is estimated using two different samples, the OECD countries and the European OECD countries, over the period 1995-2008. The results suggest a noticeable impact of the euro on tourism, bigger than estimated in previous research. However, evidence of tourism diversion is found. The estimates also indicate a greater impact of the introduction of coins and notes in 2002 than the effect of the irrevocable fixing of conversion rates in 1999. Furthermore, the results show that the euro effect on tourism could have been anticipated during earlier stages of the EMU.
    Keywords: currency unions, euro effect, panel data, international tourist arrivals
    JEL: F10 F15
    Date: 2012

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