nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2015‒07‒11
23 papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. A fresh look at an old question: is pro-poor targeting of cash transfers more effective than universal systems at reducing inequality and poverty? By Abigail McKnight
  2. R&D activities and extensive margins of exports in manufacturing enterprises: First evidence for Germany By Joachim Wagner
  3. Potential effects of Statutory Minimum Wage on the Gender Pay Gap: A Simulation-Based Study for Germany By Christina Boll; Hendrik Hüning; Julian Leppin; Johannes Puckelwald
  4. The Effect of Changes in the Statutory Minimum Working Age on Educational, Labor And Health Outcomes By Elena del Rey; Sergi Jiménez-Martín; Judit Vall-Castello
  5. The effect of tax-benefit changes on the income distribution in 2008-2014 By De Agostini, Paola; Paulus, Alari; Tasseva, Iva Valentinova
  6. Informal Care and the Great Recession By Joan Costa-Font; Martin Karlsson; Henning Øien
  7. Innovation and Employment in Patenting Firms: Empirical Evidence from Europe By Van Roy, Vincent; Vertesy, Daniel; Vivarelli, Marco
  8. The Impact of Short- and Long-Term Participation Tax Rates on Labor Supply By Bartels, Charlotte; Pestel, Nico
  9. Adaptation to Poverty in Long-Run Panel Data By Clark, Andrew E.; D'Ambrosio, Conchita; Ghislandi, Simone
  10. Temporary employment protection reforms and productivity: evidence from an industry-level panel of EU countries By Kristel Jacquier
  11. Key Enabling Technologies and Smart Specialization Strategies. European Regional Evidence from patent data By Sandro Montresor; Francesco Quatraro
  12. Home Production and Retirement in Couples: A Panel Data Analysis By Bonsang, Eric; van Soest, Arthur
  13. The pattern of home ownership across cohorts and its impact on the net wealth distribution: Empirical evidence from Germany and the US By Alik-Lagrange, Arthur; Schmidt, Tobias
  14. Do more of those in misery suffer from poverty, unemployment or mental illness? By Sarah Flèche; Richard Layard
  15. Education and criminal behavior: insights from an expansion of upper secondary school By Åslund, Olof; Grönqvist, Hans; Hall, Caroline; Vlachos, Jonas
  16. Shifting taxes from labor to consumption: More employment and more inequality By Pestel, Nico; Sommer, Eric
  17. Endogenizing take-up of social assistance in a microsimulation model : a case study for Germany By Wiemers, Jürgen
  18. Labor Demand and ICT Adoption in Spain By Manuel Hidalgo-Pérez; Jesús Rodríguez López; José M. Okean
  19. Do Treatment Decisions Depend on Physicians’ Financial Incentives? By Kurt R. Brekke; Tor Helge Holmås; Karin Monstad; Odd Rune Straume
  20. European Identity and Redistributive Preferences By Joan Costa-Font; Frank A Cowell
  21. Low-Skilled Jobs and Student Jobs: Employers' Preferences in Slovakia and the Czech Republic By Kureková, Lucia Mýtna; Žilinčíková, Zuzana
  22. Universal pre-school education: the case of public funding with private provision By Jo Blanden; Emilia Del Bono; Sandra McNally; Birgitta Rabe
  23. How to Fight Long-Term Unemployment: Lessons from Germany By Spermann, Alexander

  1. By: Abigail McKnight
    Abstract: This paper presents findings on the changing effectiveness of cash transfers and income taxes on inequality and poverty reduction in four EU countries – the UK, Italy, Sweden and France. We use long time series (spanning four decades) to examine trends within countries over time and between countries at different points in time. Recent evidence has suggested that the relationship between concentration of cash transfers and their redistributive effectiveness has become blurred over time. We find much more conclusive evidence of a negative relationship within countries over time. The results show a negative relationship between the concentration of cash transfers net of direct taxes and their effectiveness in terms of reducing poverty and inequality. The strength of the relationship varies between countries and in some cases between the all age and the working age populations. The evidence suggests that caution should be applied to relying on bivariate cross-country estimates and that more should be done to establish and verify empirical relationships within countries over time using the rich data sources that are now available. These findings re-open the debate on the most effective design of cash transfer and direct tax systems.
    Keywords: Inequality, poverty, redistribution, cash transfers, welfare
    JEL: I32 H23 D31
    Date: 2015–06
  2. By: Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper uses a new tailor-made data set to investigate for the first time the links between innovation activities (measured by employees active in research and development) and the extensive margins of exports (number of destination countries; number of goods exported) for manufacturing enterprises in Germany, the third largest exporter of goods on the world market. It documents that more innovative firms outperform less innovative firms at both margins of exports – they export more goods and they export to a larger number of countries. All these differences are statistically highly significant and large from an economic point of view.
    Keywords: Extensive margins of exports, Germany, innovation, research and development
    JEL: F14
    Date: 2015–07
  3. By: Christina Boll; Hendrik Hüning; Julian Leppin; Johannes Puckelwald
    Abstract: In a simulation-based study with data from the German Socio-Economic Panel Study (SOEP), we analyze the effects of the newly introduced statutory minimum wage of 8.50 Euro per working hour in Germany on the gender wage gap. In our first scenario where we abstain from employment effects, the pay differential is reduced by 2.5 percentage points from 19.6 % to 17.1 %, due to a reduction of the sticky-floor effect at the bottom of the wage distribution. In more realistic scenarios where we incorporate minimum wage effects on labor demand, a further reduction of the pay gap by 0.2 pp (1.2 pp) in case of a monopsonistic (neoclassical) labor market is achieved. However, this comes at the cost of job losses by which women are more strongly affected than men. The magnitude of job losses ranges be-tween 0.2 % and 3.0 % of all employees. It is higher in a neoclassical market setting and positively related to the assumed wage elasticity.
    Keywords: Minimum wage, labor demand, wage elasticity, gender pay gap, monopsony
    JEL: J31 J23 J16
    Date: 2015
  4. By: Elena del Rey; Sergi Jiménez-Martín; Judit Vall-Castello
    Abstract: In this paper we explore the effects of a labor market reform that changed the statutory minimum working age in Spain in 1980. In particular, the reform raised the statutory minimum working age from 14 to 16 years old, while the minimum age for attaining compulsory education was kept at 14 until 1990. To study the effects of this change, we exploit the different incentives faced by individuals born at various times of the year before and after the reform. We show that, for individuals born at the beginning of the year, the probabilities of finishing both the compulsory and the post-compulsory education level increased after the reform. In addition, we find that the reform decreases mortality while young (16-25) for both genders while it increases mortality for middle age women (26-40). We provide evidence to proof that the latter increase is partly explained by the deterioration of the health habits of affected women. Together, these results help explain the closing age gap in life expectancy between women and men in Spain.
    Date: 2015–05
  5. By: De Agostini, Paola; Paulus, Alari; Tasseva, Iva Valentinova
    Abstract: More than half of the EU countries have become poorer and more unequal since the start of the crisis in 2008. Despite lack of timely household micro data, using microsimulation techniques with up-to-date information on policy rules enables us to estimate the direct effect of tax-benefit policy changes in 2008-2014 on the income distribution, poverty and inequality levels in 10 EU countries, as well as track most recent trends by evaluating policy effects in 2013-2014. We identify and quantify these effects using the EU tax-benefit model EUROMOD to construct relevant counterfactual scenarios. Our results indicate that among these countries, most managed to pursue policies without adverse distributional effects, despite of challenging economic problems in this period. However, this has been accompanied by reductions in household income in several countries. There have also been some cases of clearly regressive changes in particular policy instruments. Overall, our results demonstrate the importance of comprehensive regular indexation to avoid the erosion of benefit amounts and tax thresholds over time, and specific population groups systematically gaining or losing relative to others.
    Date: 2015–07–02
  6. By: Joan Costa-Font (London School of Economics); Martin Karlsson (CINCH – Health Economics Research Center); Henning Øien (University of Oslo)
    Abstract: Macroeconomic downturns can have an important impact on the availability of informal and formal long-term care. This paper investigates how the market for informal care changed during and after the Great Recession in Europe. We use data from the Survey of Health, Aging and Retirement in Europe, which includes a rich set of variables covering waves before and after the Great Recession. We find evidence of an increase in the availability of informal care and a reduction in the use of formal health services (doctor visits and hospital stays) after the economic downturn when controlling for year and country fixed effects. This trend is mainly driven by changes in care provision of individuals not cohabiting with the care recipient. We also find a small negative association between old-age health and crisis severity. The results are robust to the inclusion of individual characteristics, individual-specific effects and regionspecific time trends.
    Keywords: long-term care, informal care, great recession, downturn, old age dependency
    JEL: J1 I18
    Date: 2015–02
  7. By: Van Roy, Vincent (European Commission, Joint Research Centre); Vertesy, Daniel (European Commission, Joint Research Centre); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: This paper explores the possible job creation effect of innovation activity. We analyze a unique panel dataset covering almost 20,000 patenting firms from Europe over the period 2003-2012. The main outcome from the proposed GMM-SYS estimations is the labour-friendly nature of innovation, which we measure in terms of forward-citation weighted patents. However, this positive impact of innovation is statistically significant only for firms in the high-tech manufacturing sectors, while not significant in low-tech manufacturing and services.
    Keywords: technological change, innovation, patents, employment, GMM-SYS
    JEL: O31 O33
    Date: 2015–06
  8. By: Bartels, Charlotte (Freie Universität Berlin); Pestel, Nico (IZA)
    Abstract: Generous income support programs as provided by European welfare states have often been blamed to hamper employment. This paper investigates the importance of incentives inherent in the tax-benefit system for the individual decision to take up work. Using German microdata over the period 1993-2010 we find that recent reforms in Germany increased work incentives at the extensive margin measured by the Participation Tax Rate (PTR), particularly for low-income individuals. Work incentives are even higher if the time horizon is extended to more than one year, pointing at an overestimation of the disincentives by standard measures. Regression analysis reveals that a decrease in the PTR increases the likelihood of taking up work significantly.
    Keywords: labor force participation, work incentives, welfare, unemployment insurance, income taxation
    JEL: H24 H31 J22 J65
    Date: 2015–06
  9. By: Clark, Andrew E.; D'Ambrosio, Conchita; Ghislandi, Simone
    Abstract: We consider the link between poverty and subjective well-being, and focus in particular on potential adaptation to poverty. We use panel data on almost 54,000 individuals living in Germany from 1985 to 2012 to show first that life satisfaction falls with both the incidence and intensity of contemporaneous poverty. We then reveal that there is little evidence of adaptation within a poverty spell: poverty starts bad and stays bad in terms of subjective well-being. We cannot identify any cause of poverty entry which explains the overall lack of poverty adaptation.
    Keywords: income, poverty, subjective well-being, adaptation, SOEP
    Date: 2015–05
  10. By: Kristel Jacquier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: We investigate the impact of reforms on employment protection for temporary contracts on Total Factor Productivity (TFP) using panel data of industries across 14 European countries. Within-industry variation over the period 1992-2007 is exploited to capture reforms. The legislation on temporary contracts (EPT) affects the use of such contracts, making it a valid instrument to prove a causal relationship between a change in legislation and macroeconomic performances. Indeed, the two stage estimates emphasize the negative relationship between the share of temporary employment and TFP at the industrial level. Marginal effects prove that increasing regulation on temporary jobs has a strong negative impact on the use of fixed-term contracts if employment protection on regular contract (EPR) is low. When employment protection on open-ended contract reaches its highest level; this effect is stronger. Our study shows that asymmetric institutional change might indeed leads to lower productivity growth through a surge in temporary employment.
    Date: 2015–03
  11. By: Sandro Montresor (Kore University of Enna); Francesco Quatraro (University of Turin)
    Abstract: The paper aims at investigating whether Key Enabling Technologies (KETs) can have a role in facilitating regional Smart Specialisation Strategies (S3). Drawing on the economic geography approach to S3, we formulate some hypotheses about the impact that KETs-related knowledge can have on the construction of new regional technological advantages (RTAs). By crossing regional data on patent applications, in KETs-mapped classes of the International Patent Classification (IPC), with a number of regional economic indicators, we test these hypotheses on a panel of 26 European countries over the period 1980-2010. KETs show a positive impact on the construction of new RTAs, pointing to a new “enabling” role for them. KETs also exert a negative moderating role on the RTAs impact of the density of related pre-existing technologies, pointing to the KETs capacity of making the latter less binding in pursuing S3. Overall, the net-impact of KETs is positive, pointing to a new case for plugging KETs in the S3 policy tool-box.
    Keywords: Key Enabling Technologies; Smart Specialization Strategies; Revealed Technological Advantages
    JEL: R11 R58 O31 O33
    Date: 2015
  12. By: Bonsang, Eric (LISER (CEPS/INSTEAD)); van Soest, Arthur (Tilburg University)
    Abstract: We analyse the effects of retirement of one partner on home production by both partners in a couple. Using longitudinal data from Germany on couples, we control for fixed household specific effects to address the concern that retirement decisions are correlated with unobserved characteristics that also affect home production. For males and females, we find that own retirement significantly increases the amounts of home production. There are negative cross-effects of retirement on home production done by the partner. The fall in household income at retirement of one of the partners is largely compensated by an increase in total household production.
    Keywords: time allocation, home production, retirement, couples
    JEL: J22 J29 J14
    Date: 2015–06
  13. By: Alik-Lagrange, Arthur; Schmidt, Tobias
    Abstract: In this empirical paper we analyze the link between homeownership across cohorts and the net wealth distribution. In particular we are interested in the effect of the pattern of ownership across cohorts. Given that wealth accumulates over the life-cycle and that owners are wealthier than renters, past tenure choices, affecting today's share of owners for different cohorts, should be related to current wealth levels and inequality. In order to gauge the effect of the ownership structure over cohorts on the distribution of net wealth we impose the homeownership pattern of the US on Germany and ask: What would the net wealth distribution in Germany look like if German households were distributed across tenure status along cohorts the same way as those in the US? Our results indicate that the ownership rate and pattern within cohorts is closely linked to the wealth distribution. Imposing the structure of the US on Germany leads to a large increase in the German median and reduces wealth inequality. We show that some of these effects can be attributed to the difference in ownership shares between old cohorts in Germany and the US as often mentioned in the literature, but this effect appears to be less pronounced than expected. Past tenure choice indeed affects today's net wealth distribution.
    Keywords: homeownership,decomposition,cohort effects,wealth
    JEL: D31 D30
    Date: 2015
  14. By: Sarah Flèche; Richard Layard
    Abstract: Studies of deprivation usually ignore mental illness. This paper uses household panel data from the USA, Australia, Britain and Germany to broaden the analysis. We ask first how many of those in the lowest levels of life-satisfaction suffer from unemployment, poverty, physical ill health, and mental illness. The largest proportion suffer from mental illness. Multiple regression shows that mental illness is not highly correlated with poverty or unemployment, and that it contributes more to explaining the presence of misery than is explained by either poverty or unemployment. This holds both with and without fixed effects.
    Keywords: Mental health; life-satisfaction; wellbeing; poverty; unemployment
    JEL: I31 I32
    Date: 2015–06
  15. By: Åslund, Olof (IFAU - Institute for Evaluation of Labour Market and Education Policy); Grönqvist, Hans (SOFI, Stockholm University); Hall, Caroline (IFAU - Institute for Evaluation of Labour Market and Education Policy); Vlachos, Jonas (Department of Economics, Stockholm University)
    Abstract: We study the impact on criminal activity from a large scale Swedish reform of vocational upper secondary education, extending programs from two to three years and adding more general theoretical content. The reform directly concerns age groups where criminal activity is high and students who are highly overrepresented among criminal offenders. The nature of the reform and the rich administrative data allow us to shed light on several behavioral mechanisms. Our results show that the prolonged and more general education lead to a reduction in property crime, but no significant decrease in violent crime. The effect is mainly concentrated to the third year after enrollment, which suggests that being in school reduces the opportunities and/or inclinations to commit crime.
    Keywords: Education; delinquency
    JEL: K42
    Date: 2015–06–22
  16. By: Pestel, Nico; Sommer, Eric
    Abstract: This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value-added tax (VAT) rate, which are compensated by revenue-neutral reductions in income-related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.
    Keywords: income and payroll taxes,consumption taxes,microsimulation,inequality,Germany
    JEL: C63 D31 H23
    Date: 2015
  17. By: Wiemers, Jürgen (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Microsimulation studies typically assume that all entitlements to means-tested benefits are actually claimed by eligible households, despite a large body of research that suggests that take-up rates are substantially below 100%. The assumption of full take-up tends to exaggerate the simulated increase in caseloads and fiscal costs of a social policy reform. This paper investigates the impact of non-take-up for two hypothetical scenarios, namely increasing and decreasing the base amount of social assistance in Germany by EURO 100 per month. We find a substantial effect of considering non-take-up on the simulated change in fiscal costs and in particular on the change in caseloads, where the full take-up assumption exaggerates the latter change by a factor of about two." (Author's abstract, IAB-Doku) ((en))
    Keywords: leistungsberechtigte Arbeitslose, Arbeitslosengeld II, Leistungsanspruch - Inanspruchnahme, Simulation, Sozialgesetzbuch XII, Nicht-Inanspruchnahme
    JEL: I38 H31 C15
    Date: 2015–07–07
  18. By: Manuel Hidalgo-Pérez (Universidad Pablo de Olavide); Jesús Rodríguez López (U. Pablo de Olavide); José M. Okean (U. Pablo de Olavide)
    Abstract: Spain is delayed in adopting information and communication technologies (ICT) and its productivity per hour worked presents a downward trend since the mid 90s. In this paper we argue that these two facts are related. Using the EU KLEMS dataset we test the capital-skill complementarity hypothesis in a cross-section of sectors in Spain. We find that the substitutability between workers and ICT assets falls as worker skill level rises, and that this feature holds across all sectors. Further- more, the ICT assets are complementary with skilled workers. The fraction of workers employed with medium and high skills across sectors rose by 21% and 12%, respectively, to the disadvantage of low skilled workers, due to an adjustment within sectors more than to a composition effect between sectors. Finally, using a regression analysis, we conclude that some labor market institutions are likely behind the evolution of sectorial productivity and ICT investment in Spain.
    Keywords: Productivity, TFP, ICT, education
    JEL: I24 J24 O40
    Date: 2015–07
  19. By: Kurt R. Brekke (Department of Economics, Norwegian School of Economics); Tor Helge Holmås (Uni Rokkan Centre and Health Economics Bergen); Karin Monstad (Uni Rokkan Centre and Health Economics Bergen); Odd Rune Straume (Universidade do Minho - NIPE)
    Abstract: We study whether and how physicians respond to financial incentives, making use of detailed register data on the health-care services provided to patients by general practitioners (GPs) in Norway over a six-year period (2006-11). To identify GPs' treatment responses, we exploit that specialisation in general medicine entitles the GPs to a higher consultation fee, implying a change in total and relative fee payments. To control for demand and supply factors related to becoming a specialist, we estimate a GP fixed effect model focusing on a narrow time window around the date of specialist certification. Our results show a sharp response by the GPs immediately after obtaining specialist certification and thus a higher consultation fee: the number of visits increase, while the treatment intensity (prolonged consultations, lab tests, medical procedures) decline. These findings are consistent with a theory model where (partly) profit-motivated GPs face excess demand and income effects are sufficiently small. Finally, we find no evidence for adverse health effects (measured by emergency care centre visits) on patients due to the change in GPs treatment behaviour after becoming a specialist.
    Keywords: General Practitioners; Fee-for-service; Profit-motivation
    JEL: H42 H51 I11 I18
    Date: 2015
  20. By: Joan Costa-Font; Frank A Cowell
    Abstract: How important is spatial identity in shifting preferences for redistribution? This paper takes advantage of within-country variability in the adoption of a single currency as an instrument to examine the impact of the rescaling of spatial identity in Europe. We draw upon data from the last three decades of waves of the European Values Survey and we examine the impact of joining the single currency on preferences for re- distribution. Our instrumentation strategy relies on using the exogenous effect of joining a common currency, alongside a battery of robustness checks and alternative instruments. Our findings suggest that joining the euro has a boosting effect on European identity; an opposite and comparable effect is found for national pride. We find that European identity increases preferences for redistribution, and that national pride exerts an equivalent reduction in preferences for redistribution.
    Keywords: spatial identity, Europe, welfare state support
    JEL: D69 O52 H53
    Date: 2015–06
  21. By: Kureková, Lucia Mýtna (Slovak Governance Institute); Žilinčíková, Zuzana (Masaryk University)
    Abstract: Massification of tertiary education, growing share of student workers on labour market and consequently increased competition for low-skilled jobs gave rise to the theory of crowding out of the less educated workers. This paper contributes to better understanding of temporary skills-qualifications mismatch typical for student workers by analysing the preferences of employers in low-skilled jobs and student jobs. We take labour market demand perspective and carry out exploratory analysis of job offers posted online in Slovakia and the Czech Republic. The results show that the student labour market is quite diverse as student job offers can be found in low-skilled, but also medium-skilled positions. We also find that although student vacancies require, on average, fewer skills than non-student positions, there is strong correlation between formal sophistication of a job vacancy and the required minimum educational level, as well as required skills for both student and non-student positions. It appears that low-educated workers and student workers do not compete for the limited number of positions, but rather fill employers' demands for different types of hard (e.g. language skills) and soft (e.g. flexibility, adaptability) skills. These results support the complementarity view of the coexistence of student employment and low-skilled employment rather than the crowding out theory.
    Keywords: youth, students, employment, skills, vacancy, online, labor demand, Czech Republic, Slovakia
    JEL: J23 J21 J24 J63
    Date: 2015–06
  22. By: Jo Blanden; Emilia Del Bono; Sandra McNally; Birgitta Rabe
    Abstract: This paper studies the effect of free pre-school education on child outcomes in primary school. We exploit the staggered implementation of free part-time pre-school for three-year-olds across Local Education Authorities in England in the early 2000s. The policy led to small improvements in attainment at age five, with no apparent benefits by age 11. We argue that this is because the expansion of free places largely crowded out privately paid care, with small changes in total participation, and was achieved through an increase in private provision, where quality is lower on average than in the public sector.
    Keywords: Childcare; child outcomes; publicly provided goods
    JEL: H44 I21
    Date: 2015–05
  23. By: Spermann, Alexander (IZA)
    Abstract: The number of long-term unemployed in Germany has stagnated at around one million for several years. Despite excellent labour market conditions, the long-term unemployment rate is well above the OECD average. Therefore, the "carrot and stick" principle of Hartz reforms is in clear need of further development. The author proposes an overall concept for preventing and reducing long-term unemployment and long-term basic income receipt. An important element is an activation strategy for long-term unemployed and long-term basic income recipients that implies interim target setting and requires more and better trained case managers in the job centres.
    Keywords: long-term unemployment, long-term basic income receipt, Germany, training programs, active labor market policy, activation
    JEL: J31 J38
    Date: 2015–06

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