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Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?

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Author Info
Sari Pekkala
Aki Kangasharju

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Abstract

This paper analyses regional labour market adjustment in the Finnish provinces during 1971-96. It investigates the interrelations of employment, unemployment and labour force participation to examine how a change in labour demand is adjusted to. The study questions the usual assumption that positive and negative shocks evoke similar adjustment processes. Instead, we test for the possibility that the effects of positive and negative shocks are asymmetric. The analysis reveals that there is little asymmetry in the adjustment to region‐specific labour demand shocks, but adjustment to total (region‐specific plus common component) shocks displays more asymmetry. The region‐specific component of a labour demand shock has short‐lived effects on unemployment and participation, and its effect on employment is very small but permanent [persistent?]. Initially, most of the fall in employment is absorbed by the unemployment and participation rate, but after a few years migration plays a larger role in the adjustment process. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd 2002.

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Article provided by CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd in its journal Labour.

Volume (Year): 16 (2002)
Issue (Month): 2 (06)
Pages: 267-286
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Handle: RePEc:bla:labour:v:16:y:2002:i:2:p:267-286

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  1. Chiara Bentivogli & Patrizio Pagano, 1999. "Regional Disparities and Labour Mobility: the Euro-11 versus the USA," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 13(3), pages 737-760, 09. [Downloadable!] (restricted)
  2. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland. [Downloadable!]
  3. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-57, September. [Downloadable!] (restricted)
  4. Paolo Mauro & Antonio Spilimbergo, 1998. "How Do the Skilled and the Unskilled Respond to Regional Shocks? The Case of Spain," IMF Working Papers 98/77, International Monetary Fund.
  5. Pissarides, Christopher A & McMaster, Ian, 1990. "Regional Migration, Wages and Unemployment: Empirical Evidence and Implications for Policy," Oxford Economic Papers, Oxford University Press, vol. 42(4), pages 812-31, October. [Downloadable!] (restricted)
  6. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November. [Downloadable!] (restricted)
  7. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June. [Downloadable!] (restricted)
  8. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-1), pages 1-76. [Downloadable!]
  9. Maria Demertzis & Andrew Hallett, 1996. "Regional Inequalities and the Business Cycle: An Explanation of the Rise in European Unemployment," Regional Studies, Taylor and Francis Journals, vol. 30(1), pages 15-29, February. [Downloadable!] (restricted)
  10. Millard, Stephen & Scott, Andrew & Sensier, Marianne, 1997. "The Labour Market over the Business Cycle: Can Theory Fit the Facts?," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 70-92, Autumn.
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  11. Jaakko Pehkonen, Hannu Tervo, 1998. "Persistence and Turnover in Regional Unemployment Disparities," Regional Studies, Taylor and Francis Journals, vol. 32(5), pages 445-458, July. [Downloadable!] (restricted)
  12. Ian Gordon, 1985. "The cyclical sensitivity of regional employment and unemployment differentials," Regional Studies, Taylor and Francis Journals, vol. 19(2), pages 95-110, April. [Downloadable!] (restricted)
  13. Pissarides, Christopher A & Wadsworth, Jonathan, 1989. "Unemployment and the Inter-regional Mobility of Labour," Economic Journal, Royal Economic Society, vol. 99(397), pages 739-55, September. [Downloadable!] (restricted)
  14. Clark, Todd E, 1998. "Employment Fluctuations in U.S. Regions and Industries: The Roles of National, Region-Specific, and Industry-Specific Shocks," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 202-29, January. [Downloadable!] (restricted)
  15. Robert J. Barro & Mark Rush, 1979. "Unanticipated Money and Economic Activity," NBER Working Papers 0339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Sari Pekkala, 2002. "Unemployment and Migration: Does Moving Help?," Discussion Papers 281, Government Institute for Economic Research Finland (VATT). [Downloadable!]
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