nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2013‒01‒07
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. GINI DP 29: Imputed rent and income re-ranking. Evidence from EU-SILC data By Virginia Maestri
  2. GINI DP 51: In-Work Poverty By Ive Marx; Brian Nolan
  3. GINI DP 41: Home Ownership and Income Inequalities in Western Europe: Access, Affordability and Quality By Michelle Norris; Nessa Winston
  4. How do institutions influence the own-account worker's decision to hire employees? By André van Stel; José Maria Millán; Concepcion Roman; Ana Millán
  5. Cross-country difference in R&D productivity Comparison of 11 European economies By Lööf, Hans; Savin, Maxim
  6. The Relationship between EU Indicators of Persistent and Current Poverty By Jenkins, Stephen P.; Van Kerm, Philippe
  7. Country-specific life satisfaction effects of unemployment: Does labour market policy matter? By Wulfgramm, Melike
  8. Trust Issues: Evidence from Second Generation Immigrants By Ljunge, Martin
  9. Equality-Efficiency Trade-off within French and German Couples – A Comparative Experimental Study By Hélène Couprie; Miriam Beblo; Denis Beninger; François Cochard; Astrid Hopfensitz
  10. How Important is Total Factor Productivity for Growth in Central, Eastern and Southeastern European Countries? By Konstantins Benkovskis; Ludmila Fadejeva; Robert Stehrer; Julia Woerz
  11. Why Are Educated and Risk-Loving Persons More Mobile across Regions? By Stefan Bauernschuster; Oliver Falck; Stephan Heblich; Jens Suedekum
  12. Fostering job search among older workers: the case for pension reform By J. Ignacio García Pérez; Alfonso R. Sánchez Mártin
  13. On the Socio-Economic Determinants of Frailty: Findings from Panel and Retrospective Data from SHARE By Nicolas Sirven
  14. Development Scenarios for the North and Baltic Sea Grid: A Welfare Economic Analysis By Jonas Egerer; Friedrich Kunz; Christian von Hirschhausen
  15. “Beyond pure public and pure private management models: Mixed firms in the European Airport Industry” By Daniel Albalate; Germà Bel; Xavier Fageda
  16. The Role of Parental Income over the Life Cycle: A Comparison of Sweden and the UK By Björklund, Anders; Jäntti, Markus; Nybom, Martin
  17. Pension wealth and household savings in Europe: Evidence from SHARELIFE By Santen, Peter van; Angelini, Viola; Alessie, Rob
  18. Public Support for European Integration : A comparative analysis. By Kristel Jacquier
  19. Bank efficiency, market concentration and economic growth in the European Union By Cândida Ferreira
  20. The Impact of the German Child Benefit on Child Well-Being By Christian Raschke

  1. By: Virginia Maestri (AIAS, Universiteit van Amsterdam)
    Abstract: The inclusion of the in-kind housing advantage in the concept of economic well-being reduces inequality and poverty in most European countries. However, it also generates income re-ranking among households and reduces the redistributive capacity of tax systems. We calculate the proportion of households who are re-ranked due to the inclusion of imputed rent in the income concept, before and after taxes, by income quintile, tenure and age groups. We find that imputed rent re-ranks about 18% of households before taxes and 32% after taxes at European level, although the extent varies widely across countries. The analysis identifies three broad groups of countries according to the impact of imputed rent on income re-ranking for different tenure categories. In Eastern European countries, households are re-ranked more within than across tenure groups. In Southern and continental countries renters in the private market are mostly re-ranked downward and outright homeowners upward. In Nordic countries, a large share of homeowners with an outstanding mortgage is re-ranked downward, with the exception of Sweden. Older households are the ones who mostly benefit from imputed rent, again with the exception of Sweden. The paper concludes with some remarks on EU-SILC data.
    Date: 2012–12
  2. By: Ive Marx (Centre for Social Policy, University of Antwerp); Brian Nolan (School of Applied Social Science, University College Dublin)
    Abstract: While in-work poverty is not a new problem, the degree of attention it is receiving in Europe is more recent, reflecting at least two concurrent sources of concern (Andreβ and Lohmann 2008; OECD 2008; European Foundation 2010; Fraser et al. 2011; Crettaz 2011; European Commission 2011). Deindustrialisation, intensifying international trade and skill-biased technological change are said to be threatening if not effectively eroding the (potential) earnings and living standards of some workers in advanced economies. Yet at the same time, policy at EU level and in many countries has become focused on increasing the number of people relying on earnings, and particularly on drawing into the labour market those with the weakest education and work history profiles. The Europe 2020 target of boosting employment rates to 75 per cent of the population aged 20 to 64 shows this drive to be undiminished. Sharply increased unemployment in some countries following on from the onset of the economic crisis has only served to increase the emphasis on getting people into jobs. In light of these trends, there would appear to be legitimate concern that larger sections of the workforce are being expected to rely on jobs that do not generate sufficient income to escape poverty....
    Date: 2012–07
  3. By: Michelle Norris (Extension at the Champaign Center, University of Illinois); Nessa Winston
    Abstract: Since the 1980s tenure patterns in Western Europe changed radically. The social and private rented sectors have generally contracted and in most EU15 countries home ownership has expanded significantly. This paper tests the relationship between home ownership and inequality in Western Europe, revealing significant inter-country differences in home ownership inequalities in 1997, particularly between the countries of southern and western Europe on the one hand and central and northern Europe on the other. However, these differences had significantly diminished by 2007, as had inter-country variations in income inequality. The results suggest that home ownership helped to counterbalance wider inequalities in the income distribution in 1997, particularly in Southern Europe. However, by 2007 home ownership played a less significant role in counterbalancing inequality in these countries. In the other relatively unequal countries, home ownership was enabled by more widespread mortgage indebtedness and played less of a role in counterbalancing income inequality.
    Date: 2012–05
  4. By: André van Stel; José Maria Millán; Concepcion Roman; Ana Millán
    Abstract: This paper examines the impact of the institutional environment on the individual decision of ownaccount workers to hire employees. In particular, we investigate whether variations in degree of employment protection, expenditure on employment incentives and taxation frameworks influence this decision. In conducting this analysis, discrete choice models are applied to individual level data drawn from the European Community Household Panel for the EU-15 countries. The institutional macro proxies we include are developed by OECD. Our results show that the strictness of employment protection legislation is negatively related to the probability that own-account workers hire employees and hence, become employers. We also find that the decision to hire employees is positively related to the expenditure on employment incentives and negatively related to corporate income tax rates. This new evidence may be useful for governments aiming to create a more enabling macro-environment for employment growth.
    Date: 2012–12–18
  5. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Savin, Maxim (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper examines differences in R&D productivity across a group of geographically adjacent economies. By distributing close to 355,000 patents across 18 industries in 11 countries, we find clear and systematic country patterns when taking into account differences in industrial structure, institutional arrangements and R&D intensity. This finding supports the argument that innovation systems are important for an industry’s capacity to generate new patentable knowledge.
    Keywords: Patent; R&D; Innovation; international comparison; panel data
    JEL: L60 O33 O50
    Date: 2012–12–19
  6. By: Jenkins, Stephen P. (London School of Economics); Van Kerm, Philippe (CEPS/INSTEAD)
    Abstract: The current poverty rate and the persistent poverty rate are both included in the EU's portfolio of primary indicators of social inclusion. We show that there is a near-linear relationship between these two indicators across EU countries drawing on empirical analysis of EU-SILC and ECHP data. Using a prototypical model of poverty dynamics, we explain how the near-linear relationship arises and show how the model can be used to predict persistent poverty rates from current poverty information. In the light of the results, we discuss whether the EU's persistent poverty measure and the design of EU-SILC longitudinal data collection require modification.
    Keywords: persistent poverty, income poverty, poverty, EU-SILC, Europe
    JEL: I32 D31
    Date: 2012–12
  7. By: Wulfgramm, Melike
    Abstract: Public policy shapes the lives of individuals, and even more so if they depend on state support. But to what extent can well-being differences between individuals living in different European states be traced back to the specific national public policy designs? This paper tests the intervening effects of the design and generosity of labour market policy on the life satisfaction of the unemployed. To estimate cross-level interaction effects in random intercept models, macro-indicators on active labour market policy spending and unemployment benefit generosity of 21 European countries are merged with survey data from the European Social Survey (ESS). While unemployment has strong negative life satisfaction effects all over Europe, the generosity of passive labour market policy moderates this effect to a surprisingly large extent: The adverse effect of unemployment is almost doubled in a country with meagre unemployment benefits. This moderating effect can be explained both by a resource as well as a non-pecuniary mechanism. In contrast, the moderating effect of active labour market policy is less robust across model specifications. -- Das Leben aller Bürger wird durch die Ausgestaltung des Wohlfahrtsstaats gerahmt und dies gilt in besonderem Maße für diejenigen, die auf Unterstützung durch den Sozialstaat angewiesen sind. Doch inwiefern lassen sich die Unterschiede im subjektiven Wohlbefinden von europäischen Arbeitslosen durch die nationale Ausgestaltung der Arbeitsmarktpolitik erklären? Dieses Paper untersucht den moderierenden Einfluss der Generosität und des Designs aktiver und passiver Arbeitsmarktpolitik auf die Lebenszufriedenheit der betroffenen Arbeitslosen. Hierzu werden die Umfragedaten von 4 Wellen des European Social Surveys gemeinsam mit arbeitsmarkpolitischen Makrodaten in einer Mehrebenenanalyse untersucht. Während sich der negative Lebenszufriedenheitseffekt von Arbeitslosigkeit in allen Ländern bestätigt, zeigt sich ein überraschend starker moderierender Effekt der Generosität der Arbeitslosenunterstützung: Der nachteilige Effekt von Arbeitslosigkeit verdoppelt sich in Ländern mit eingeschränkten Leistungen im Vergleich zu großzügigeren Ländern beinahe. Hierbei finden sich Hinweise auf nichtpekuniäre sowie Ressourcenmechanismen. Der positive moderierende Effekt der aktiven Arbeitsmarktpolitik stellt sich hingegen als deutlich weniger robust dar.
    Keywords: labor market policy,welfare state,unemployment,life satisfaction,subjective well-being,unemployment benefits
    Date: 2012
  8. By: Ljunge, Martin (Research Institute of Industrial Economics (IFN))
    Abstract: This paper estimates the intergenerational transmission of trust by studying second generation immigrants in 29 European countries with ancestry in 87 nations. There is significant transmission of trust on the mother’s side. The transmission is stronger in Northern Europe. Ancestry from more developed countries suggests a stronger transmission of trust, but the heterogeneity in ancestry dissipates for individuals who reside in Northern Europe. The results suggest an interaction between cultural background and current institutions, where building trust in Northern Europe is a long process but the adjustment to the trust levels in Southern and Eastern Europe is fast.
    Keywords: Intergenerational transmission; Trust; Immigrants; Cultural transmission; Integration of immigrants
    JEL: D13 D83 J62 Z13
    Date: 2012–12–19
  9. By: Hélène Couprie; Miriam Beblo; Denis Beninger; François Cochard; Astrid Hopfensitz (THEMA, Universite de Cergy-Pontoise and THEMA; Universität Hamburg; Universität Hamburg and University of Strasbourg; Université de Franche-Comté (CRESE); Toulouse School of Economics)
    Abstract: We present the results of an experiment measuring social preferences within couples in a context where intra-household pay-off inequality can be reduced at the cost of diminishing household income. We measure social norms regarding this efficiency-equality trade-off and implement a cross-country comparison between France and Germany. In particular, we show that German households are more inequality averse and are thus less efficient than French households. A decomposition of this difference reveals that approximately 40% is driven by diverging sample compositions in the two countries, while 60% of the initial French/German difference remains unexplained. Beliefs differ significantly from observed behavior in both countries. Efficient choices are overestimated in the German sample and underestimated in the French.
    Keywords: Intra-household allocation, Inequality aversion, Pareto efficiency, social norms
    JEL: C71 C91 C92 D13
    Date: 2012
  10. By: Konstantins Benkovskis; Ludmila Fadejeva; Robert Stehrer; Julia Woerz
    Abstract: The evolution of total factor productivity (TFP) is a key determinant of long-run economic growth of a country. In this paper we analyse the contributions from technological change at the industry level to an economy's aggregate growth performance. Our derivation of total TFP growth entails three major improvements over the traditional Solow residual approach. First, we allow for non-constant returns to scale as well as changes in the utilisation of input factors in our estimation of industry TFP growth. Second, we use a novel approach to aggregate TFP from industry level to macro level, which incorporates both direct and indirect effects through intermediate linkages within an economy. Third, we take account of open economy characteristics by assigning an explicit role to terms-of-trade shocks. Our calculations for the sample of 10 Eastern European EU Member States over the time period from 1995 to 2009 are based on the newly available World Input-Output Database (WIOD).
    Keywords: total factor productivity, terms of trade, utilisation, input-output table, Central, Eastern and Southeastern Europe
    JEL: C23 D24 E23 O47
    Date: 2012–12–20
  11. By: Stefan Bauernschuster; Oliver Falck; Stephan Heblich; Jens Suedekum
    Abstract: Why are better educated and more risk-friendly persons more mobile across regions? To answer this question, we use micro data on internal migrants from the German Socio-Economic Panel (SOEP) 2000–2006 and merge this information with a unique proxy for region-pair-specific cultural distances across German regions constructed from historical local dialect patterns. Our findings indicate that risk-loving and skilled people are more mobile over longer distances because they are more willing to cross cultural boundaries and move to regions that are culturally different from their homes. Other types of distance-related migration costs cannot explain the lower distance sensitivity of educated and risk-loving individuals.
    Keywords: Migration, culture, distance, human capital, risk attitudes
    JEL: J61 R23 D81
    Date: 2012
  12. By: J. Ignacio García Pérez (Department of Economics, Universidad Pablo de Olavide); Alfonso R. Sánchez Mártin (Department of Economics, Universidad Pablo de Olavide)
    Abstract: The job search demands made upon older unemployed workers in developed economies have traditionally been very relaxed. This has recently changed in some European countries (eg, Germany and Finland), as part of an effort to increase the labor force participation of older workers. Is this new approach appropriate? There is some disagreement among academics about the optimality of this new policy stance. We contribute to this debate by exploring the consequences of institutional reform in Spain, a country with a high rate of unemployment and a tolerant attitude toward the use of unemployment benefits as early retirement income. We develop an applied model of job-search and retirement behavior; calibrate it to the specificities of the Spanish case and successfully verify its empirical validity. We use the model to explore the effects of a change in the pension rules to link early retirement penalties to the age when an individual stops paying contributions. This reform removes the incentives to remain unemployed without searching, encouraging individuals to either retire or actively engage in job seeking. It results in welfare losses, especially for those workers that respond by changing behavior; yet the reform also raises enough extra resources whereby the public authorities may more than compensate all the affected workers.
    Keywords: unemployment, retirement, pension reform, search models.
    JEL: J64 J68 J26
    Date: 2012–12
  13. By: Nicolas Sirven (IRDES Institute for research and information in health economics)
    Abstract: Recent studies on the demand for long-term care emphasised the role of frailty as a specific precursor of disability besides chronic diseases. Frailty is defined as vulnerable health status resulting from the reduction of individuals’ reserve capacity. This medical concept is brought here in an economic framework in order to investigate the role social policies may play in preventing disability or maintaining life quality of people in a disablement process. Using four waves of panel data from the Survey on Health, Ageing, and Retirement in Europe (SHARE), a frailty index is created as a count measure for five physiologic criteria (Fried model) for respondents aged 50+ in 10 European countries, between 2004 and 2011. The longitudinal dimension is explored in two ways. First, differences in frailty dynamics over a seven-year-time period are analysed through variables that are relevant for social policy (income maintenance, housing adaptation, and prevention of social isolation) in a panel model for count data with fixed effects. Second, the individual fixed effects are decomposed by means of a random effects model with Mundlak specification. SHARE additional retrospective data on life history (SHARELIFE) are then used to investigate differences in frailty levels. The results reveal the presence of various sources of social inequalities over the life-course. Social Protection Systems thus appear to play a major role in accompanying, preventing or reducing the frailty process. Several policy implications are suggested.
    Keywords: Demand for health, Long-term care, Income maintenance, Health prevention, Panel models for count data, Mundlak device.
    JEL: I12 J14 C23
    Date: 2012–12
  14. By: Jonas Egerer; Friedrich Kunz; Christian von Hirschhausen
    Abstract: The North and Baltic Sea Grid is one of the largest pan-European infrastructure projects raising high hopes regarding the potential of harnessing large amounts of renewable electricity, but also concerns about the implementation in largely nationally dominated regulatory regimes. The paper develops three idealtype development scenarios and quantifies the technical-economic effects: i) the Status quo in which engagement in the North and Baltic Sea is largely nationally driven; ii) a Trade scenario dominated by bilateral contracts and point-to-point connections; and iii) a Meshed scenario of fully interconnected cables both in the North Sea and the Baltic Sea, a truly pan-European infrastructure. We find that in terms of overall welfare, the meshed solution is superior; however, from a distributional perspective there are losers of such a scheme, e.g. the incumbent electricity generators in France, Germany, and Poland, and the consumers in low-price countries, e.g. Norway and Sweden. Merchant transmission financing, based on congestion rents only, does not seem to be a sustainable option to provide sufficient network capacities, and much of the investment will have to be regulated to come about. We also find strong interdependencies between offshore grid expansion and the subsequent onshore network.
    Keywords: Electricity, offshore transmission, rent allocation
    JEL: D60 L51 L94
    Date: 2012
  15. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Germà Bel (Faculty of Economics, University of Barcelona); Xavier Fageda (Faculty of Economics, University of Barcelona)
    Abstract: increasing trend in airports. The literature has not paid enough attention to the mixed management models in this industry, although many European airports take the form of mixed firms or Institutional PPP, where ownership is shared between public and private sectors. We examine the determinants of the degree of private participation in the European airport sector. Drawing on a sample of the 100 largest European airports we estimate a multivariate equation in order to determine the role of airport characteristics, fiscal variables and political factors on the extent of private involvement. Our results confirm the alignment between public and private interests in PPPs. Fiscal constraints and market attractiveness promote private participation. Integrated governance models and the share of network carriers prevent the presence of private ownership, while the degree of private participation appears to be pragmatic rather than ideological.
    Keywords: Partial Privatization, Mixed Firms, Airports. JEL classification: H4; H54; H7; L88; L9
    Date: 2012–12
  16. By: Björklund, Anders (SOFI, Stockholm University); Jäntti, Markus (SOFI, Stockholm University); Nybom, Martin (SOFI, Stockholm University)
    Abstract: Research on intergenerational income mobility has shown stronger persistence between parental and offspring's income in the UK than in Sweden. We use similar data sets for the two countries to explore whether these cross-national differences show up already early in offspring's life in outcomes such as birth weight, grades at the end of compulsory school at age 16, height during adolescence, and final educational attainment. We do indeed find significant country differences in the association between parental income and these outcomes, and the associations are stronger in the UK than in Sweden. Therefore, we continue to investigate whether these differentials are large enough to account for a substantial part of the difference in intergenerational persistence estimates. We then conclude that the country differences in the intergenerational associations in birth weight and height are too weak to account for hardly any fraction of the UK-Sweden difference in intergenerational income mobility. For the more traditional human-capital variables grades and final education, however, our results suggest that the country differences can account for a substantial part of the difference in income persistence.
    Keywords: intergenerational mobility, birth weight, height, human capital
    JEL: J24
    Date: 2012–12
  17. By: Santen, Peter van; Angelini, Viola; Alessie, Rob (Groningen University)
    Abstract: We use recently collected retrospective survey data to estimate the displacement effect of pension wealth on household savings. The third wave of the Survey of Health, Ageing and Retirement in Europe, SHARELIFE, collects information on the entire job history of the respondent, a feature missing in most previous studies. We show that addressing measurement error problems is crucial to estimate the displacement effect when using survey data. We find that each euro of pension wealth is associated with a 47 (61) cent decline in non?pension wealth using robust (median) regression. In the presence of biases from measurement errors and omitted (unobserved)variables, we estimate a lower bound to the true offset between 17% and 30%, significantly different from zero. Instrumental variables regression estimates, although less precise, suggest full displacement.
    Date: 2012
  18. By: Kristel Jacquier (Centre d'Economie de la Sorbonne)
    Abstract: This paper proposes to study how socio-economic characteristics shape preferences in European matters. It is assumed that social groups threatened by liberalization tend to be more euro-skeptical than others. This hypothesis is tested using individual-level data from two rounds of the European Social Survey. Controlling for national fixed effects and income, we focus on variables of occupational status (International Standard Classification of Occupations ISCO-88, and current occupation). Finally, we include a variable of subjective partisan affiliation to make sure that our results are not concealing a left/right positioning. We argue that the economic status of agents plays a crucial role in explaining cross-sectional variations in public support for the European process in each member state. Additionally, the partisan affiliation confirms that in European matters, socio-economic forces are not a mere reflection of the left/right spectrum.
    Keywords: European integration, political economy, globalization, survey research.
    JEL: P16 F55 C25
    Date: 2012–12
  19. By: Cândida Ferreira
    Abstract: Well-functioning financial markets and banking institutions are usually considered to be a condition favourable to economic growth. The importance of bank efficiency and bank market concentration has also been the object of discussion, with the general belief that while they are of particular relevance in the context of the European Union, there is no consensus on their specific roles. This paper aims to study the effects on economic growth of the efficiency of the banking institutions, measured through Data Envelopment Analysis (DEA), and also of the concentration of the bank markets, measured by the percentage share of the total assets held by the three largest banking institutions (C3) and the Herfindahl-Hirschman Index (HHI). Considering a panel of all 27 EU countries for the time period between 1996 and 2008, the study analyses the influence of these bank and market conditions not only on the Gross Domestic Product (GDP) but also on its components: the final consumption expenditure, the gross fixed capital formation, the export of goods and services and the import of goods and services. The main findings point to the generally positive influence of bank cost efficiency on economic growth. More precisely, this influence is statistically significant for GDP and particularly with respect to the gross fixed capital formation. With regard to the bank market concentration, a generally negative influence is revealed, not only on GDP, but also on its components and is statistically more significant for the gross fixed capital formation, as well as for the export and import of goods and services. JEL Classification: G21; F43; D4; L11
    Keywords: Bank efficiency, market concentration, economic growth, European Union.
    Date: 2012–10
  20. By: Christian Raschke
    Abstract: The German Child Benefit ("Kindergeld") is paid to legal guardians of children as a cash benefit. This study employs exogenous variations in the amount of child benefit received by households to investigate the extent to which these various changes have translated into an improvement in the circumstances of children related to their well-being. I use the German Socio-Economic Panel to estimate the impact of a given change in the child benefit on food expenditures of households, the probability of owning a home, the size of the home, as well as the probability of parents’ smoking, alcohol consumption, and parents’ social activities such as traveling, visiting movie theaters, going to pop concerts, attending classical music concerts or other cultural events. Households primarily increase per capita food expenditures in response to increases in child benefit, and they also improve housing conditions. I do not find a significant effect of child benefit on parents’ smoking or drinking, but parents of older children use the child benefit to pay for their social and personal entertainment activities.
    Keywords: child benefit, fungibility of income, child well-being
    JEL: I38 D12 H31
    Date: 2012

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