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Increasing Returns and Spatial Unemployment Disparities

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Author Info
Suedekum, Jens

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Abstract

Regional unemployment rates in the European Union (EU-15) reveal a core-periphery structure. Large "core" regions in the middle of the continent have low unemployment rates, whereas excessive mass unemployment is predominantly found in the peripheral regions at the outside borders of EU-15. This geographical pattern of unemployment rates follows the pattern of GDP per capita. That is, the regions with low (high) unemployment rates on average have comparatively high (low) real income levels. In this paper we try to understand this stylised fact with the help of a theoretical model that builds on two strings in the literature: the recent trade and location theories (like the ´new economic geography´) and the ´wage curve´. Standard models of the new location theories deal with regional disparities in production and income, but they usually assume full employment and are thus ill-equipped to study spatial unemployment disparities. The wage curve-approach, which explicitly shows how disparities in real wages and unemployment rates are interrelated, can not endogenously explain the origin of these asymmetries. In this paper, we combine these previously unrelated strings and develop a unified theoretical framework. We show that a core-periphery in real wages is associated and magnified by regional unemployment disparities. This wage curve relation is stable over time with an increasing returns technology. That is, the wage curve does not vanish as workers move from the periphery to the core, but it is rather reinforced by migration. These theoretical predictions of our model are in line with the empirical evidence.

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Paper provided by Hamburg Institute of International Economics in its series Discussion Paper Series with number 26358.

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Date of creation: 2004
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Handle: RePEc:ags:hiiedp:26358

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Keywords: Regional Unemployment; Economic Geography; Increasing Returns; Wage Curve; Migration; Labor Mobility; Labor and Human Capital; R1; F4; J6;

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References listed on IDEAS
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Cited by:
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  1. Jelena Šišinaèki & Ivana Rasic & Valerija Botric, 2004. "Comparative analysis of regional unemployment and RGDP in Croatia and selected transition countries," ERSA conference papers ersa04p132, European Regional Science Association. [Downloadable!]
  2. Annekatrin Niebuhr & Silvia Stiller, 2004. "Integration and Labour Markets in European Border regions," ERSA conference papers ersa04p29, European Regional Science Association. [Downloadable!]
  3. Petra Enß & Robert Schwager, 2006. "Kommunaler Finanzausgleich und Gewerbesteuerhebesätze in Niedersachsen," Departmental Discussion Papers 127, University of Goettingen, Department of Economics. [Downloadable!]
  4. Sascha Wolff, 2006. "Migration und ihre Determinanten im ost-westdeutschen Kontext nach der Wiedervereinigung: Ein Literaturüberblick," Departmental Discussion Papers 130, University of Goettingen, Department of Economics. [Downloadable!]
  5. Thies Büttner & Robert Schwager, 2003. "Regionale Verteilungseffekte der Hochschulfinanzierung und ihre Konsequenzen," Departmental Discussion Papers 119, University of Goettingen, Department of Economics. [Downloadable!]
  6. Renate Ohr, . "European Monetary Union at Ten: Had the German Maastricht Critics Been Wrong?," Departmental Discussion Papers 141, University of Goettingen, Department of Economics. [Downloadable!]
  7. Helge Sanner & Uwe Blien, 2006. "Structural Change and Regional Employment Dynamics," ERSA conference papers ersa06p699, European Regional Science Association. [Downloadable!]
    Other versions:
  8. Anna Maria Ferragina & Francesco Pastore, 2005. "Mind the Gap: Unemployment in the New EU Regions," IZA Discussion Papers 1565, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Salvatore Barbaro & Jens Südekum, 2004. "Reforming a complicated income tax system: The political economics perspective," Departmental Discussion Papers 120, University of Goettingen, Department of Economics. [Downloadable!]
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