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Regional Mismatch and Unemployment: Theory and Evidence from Italy, 1977-1998

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  • Marco Manacorda

    ()
    (CELPE University of Salerno, Queen Mary university of London)

  • Barbara Petrongolo

    ()
    (CELPE University of Salerno, London School of Economics and Political Science)

Abstract

This paper describes the functioning of a two-region economy characterized by asymmetric wage-setting. Labor market tightness in one region (the leading-region) affects wages in the whole economy. IN equilibrium, net labor demand shifts towards the leading region raise unemployment in the rest of the economy and leave regional wages unchanged, causing an increase in aggregate unemployment. This model has some success in explaining the evolution of regional unemployment rates in Italy during the period 1977-1998. Based on SHIW micro data on earnings and ISTAT data on unemployment rates we find strong evidence that wages in Italy only respond to labor market tightness in the North. We estimate that around one third of the increase in aggregate unemployment in Italy can be explained by regional mismatch, mainly due to an excess labor supply growth in the South.

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Bibliographic Info

Paper provided by CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy in its series CELPE Discussion Papers with number 90.

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Date of creation: Jan 2005
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Handle: RePEc:sal:celpdp:90

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Keywords: Regional imbalances; Wage curve; Unemployment;

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  1. Faini, Riccardo & Galli, Giampaolo & Gennari, Pietro & Rossi, Fulvio, 1997. "An empirical puzzle: Falling migration and growing unemployment differentials among Italian regions," European Economic Review, Elsevier, vol. 41(3-5), pages 571-579, April.
  2. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
  3. Marco Manacorda & Barbara Petrongolo, 1996. "Skill Mismatch and Unemployment in OECD Countries," CEP Discussion Papers dp0307, Centre for Economic Performance, LSE.
  4. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2000. "Regional Disparities and the Italian NAIRU," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 146-77, January.
  5. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  6. Sascha O. Becker & Samuel Bentolila & Ana Fernandes & Andrea Ichino, 2004. "Job Insecurity and Children's Emancipation," CESifo Working Paper Series 1144, CESifo Group Munich.
  7. 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.
  8. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
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Cited by:
  1. Caponi, Vincenzo, 2008. "Centralized Wage Determination and Regional Unemployment Differences: The Case of Italy," IZA Discussion Papers 3592, Institute for the Study of Labor (IZA).
  2. DESTEFANIS, Sergio & PICA, Giovanni, 2011. "The Wage Curve an Italian Perspective," CELPE Discussion Papers 117, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.

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