Regional Competitiveness & Employment – a regional labour market model

1. Regional Competitiveness & Employment – a regional labour market model PhD in Quantitative Methods for Policy Analysis, Università Cattolica del Sacro Cuore, Piacenza, Italy – Simon Georg Fauser

2. Detecion & discussion of success factors of prosperous regions (low unemployment rate) <-> reasons for structural weaknesses & losses of competitiveness of suffering regions Goal: • EU integration, common currency • EU market transparency • EU regions heterogenous, different structural characteristics • Need for regional studies being tools for detecting & comparing: structurally weak <-> strong, competitive regions Need & Goal Base Model Possible Extensions Formulation of strategies to overcome deficencies

3. Industrial policy may play a crucial role in stimulating Labour demand and supply -> regional growth process • The base model is a macroeconometric model by Prof. Baussola (Unicatt) • Regional econometric model in which labour demand and supply are endogenously determined -> unemployment determined by their interaction • Model evaluates response of regional and national labour market to exogenous demand and supply shocks • He finds by intersectoral difference that industry, although declining in trems of employment still maintains a crucial role in generating employment multiplier effects. Need & Goal Base Model Possible Extensions

4. Main structure of the model: • LD:EEAGR(i)=g1(VAAGR(i), WAGR(i)/DEFAGR(i), TFPAGR(i)) EEIND(i)=g2(VAIND(i),WIND(i),DEFIND(i),TFPIND(i)) EESER(i)=g3(VASER(i),WSER(i)/DEFSER(i),TFPSER(i)) LD (value added, factor cost, proxy of tech prog. Adjustm. Process: lagged end. var. (ind. by VA growth rate) COBB-DOUGLAS • LS:SE(i)=g4(PROFSE(i),UR(i),YU(i)) PR(i)=g5(SE/POP(i), EE/POP(i), IMMIG(i)) self empl. (Neo-classical): profits, struc. Var (UR, YU)-> se seen as response to adverse job market oppotunities discouraged worker hypothesis (TELLA 1964): Var. in LS reflect var. in LD by fluc. in part. rate (Adj. lagged var) LD Need & Goal Base Model LS Possible Extensions

5. UR(i)== (LF(i)-TEE(i)/LF(i)*100) end. determined by interaction of labour force (PR*POP) & total empl. (alpha*(TE(i)) • estimation method: Least Squares • Finds some variables significant others not… • Models some shocks (1% change of resp. variable) (like inc. VAIND, or WSER…) Need & Goal Base Model Possible Extensions Data source: ISTAT, 1970-2000

6. comparison of Baussola’s model with “13 sets” of Elhorst (2000, The mystery of regional unemployment differentials) • Possible extensions considering Elhorst: Factors affecting mainly labour supply: - migration not only from abroad also within region - Commuting effects - Degree of unionisation (-> speed of adjustment) - educational qualification Factors affecting mainly labour demand: - further decompose the sectoral mix Starting point Need & Goal Base Model Possible Extensions

7. Further possible extensions: - fiscal policy variables (e.g. subsidies, incorporate taxes) (affects labour demand) - influence of regionally differentiated social benefits - introducing a spatial variable - regionally specific R&D policy->Innovation… - considering smaller regions - show shock impacts to UR of considered regions with geographical software • Application of extended Model: Interregional comparison: 1) Baden-Württemberg : Mecklenburg-Vorpommern 2) Baden-Würrtemberg : Lombardei 3)… Need & Goal Base Model Possible Extensions Application

8. Need & Goal Which estimation method? • Which estimation method? - Error Correction Model (Maximum likelihood estimation) - Seemingly unrelated regression to take account of possible comovements between equations - … Base Model Possible Extensions