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Regional Unemployment Disparities: An Evaluation of Policy Measures

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  • Nicolaas Groenewold

    (UWA Business School, The University of Western Australia)

  • Alfred Hagger

    (School of Economics, The University of Tasmania)

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    Abstract

    This paper analyses the efficacy of regional and federal government policies in reducing inter-regional unemployment disparities. We use as our framework a two-region general equilibrium model with a given freely-mobile supply of labour. We assume interregional migration to occur in response to inter-regional utility differentials. Each region has households, firms and a regional government. In addition to regional governments, there is a federal government. The firms in a region use a single factor, labour, to produce a single good which we assume to be different to that produced in the other region. It is supplied to households and to the regional government in the form of payroll taxes. Households consume some, trade some with households in the other region and give some up to the federal government as income tax. Firms and households bargain over wages and firms then choose employment to maximise profits. The resulting equilibrium will generally not be a full-employment one. We simulate a linearised numerical version of the model. We examine seven alternative policies, six carried out by a regional government and one by the federal government. In the first group there are traditional tax/expenditure polices as well as policies which might be seen as attacking the natural rate of unemployment: changes in unemployment benefits, changes in union power, changes in the labour force and changes in labour productivity. The federal government policy is a regionally- differentiated fiscal policy. Contrary to expectations, many policies which have traditionally been recommended to alleviate unemployment, are found, in fact, to exacerbate the unemployment problem.

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    Bibliographic Info

    Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 07-05.

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    Length: 38 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:uwa:wpaper:07-05

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    1. Dixon, R. & Shepherd, D., 2000. "Trends and Cycles in Australian State and Territory Unemployment Rates," Department of Economics - Working Papers Series 730, The University of Melbourne.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, Octomber.
    3. Guy Debelle & James Vickery, 1998. "Labour Market Adjustment: Evidence on Interstate Labour Mobility," RBA Research Discussion Papers rdp9801, Reserve Bank of Australia.
    4. Gordon, Ian, 1979. "Regional Unemployment Elasticities: The Neglected Role of Migration," Scottish Journal of Political Economy, Scottish Economic Society, vol. 26(1), pages 97-101, February.
    5. Petchey, Jeffrey, 1995. "Resource Rents, Cost Differences and Fiscal Equalization," The Economic Record, The Economic Society of Australia, vol. 71(215), pages 343-53, December.
    6. Petchey, Jeffrey & Shapiro, Perry, 2000. "The Efficiency of State Taxes on Mobile Labour Income," The Economic Record, The Economic Society of Australia, vol. 76(234), pages 285-96, September.
    7. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
    8. Elias, D Peter B, 1980. "Regional Unemployment Differentials: A Restatement of the Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 27(1), pages 103-05, February.
    9. Jaakko Pehkonen & Hannu Tervo, 1998. "Persistence and Turnover in Regional Unemployment Disparities," Regional Studies, Taylor & Francis Journals, vol. 32(5), pages 445-458.
    10. A. P. Thirlwall, 1966. "Regional Unemployment As A Cyclical Phenomenon1," Scottish Journal of Political Economy, Scottish Economic Society, vol. 13(2), pages 205-219, 06.
    11. Petchey, Jeffrey D, 1993. "Equalisation in a Federal Economy with Inter-state Migration," Australian Economic Papers, Wiley Blackwell, vol. 32(61), pages 336-54, December.
    12. Gordon, Ian, 1980. "Regional Unemployment Differentials: Migration not Registration," Scottish Journal of Political Economy, Scottish Economic Society, vol. 27(1), pages 97-102, February.
    13. Mansoorian, Arman & Myers, Gordon M., 1993. "Attachment to home and efficient purchases of population in a fiscal externality economy," Journal of Public Economics, Elsevier, vol. 52(1), pages 117-132, August.
    14. Myers & G.M., 1989. "Optimality, Free Mobility And The Regional Authority In Federation," Working Papers 10, John Deutsch Institute for the Study of Economic Policy.
    15. Madden, John Robert & Groenewold, Nicolaas & Hagger, Alfred James, 2000. "Competitive Federalism: A Bargain-Theoretic General Equilibrium Approach," ERSA conference papers ersa00p425, European Regional Science Association.
    16. Nicolaas Groenewold & Alfred Hagger & John Madden, 2003. "Interregional transfers: A political-economy CGE approach," Economics of Governance, Springer, vol. 82(4), pages 535-554, November.
    17. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2001. "Widening differences in Italian regional unemployment," Labour Economics, Elsevier, vol. 8(1), pages 103-129, January.
    18. Elias, D Peter B, 1978. "Regional Unemployment Elasticities: Further Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 25(1), pages 89-96, February.
    19. repec:kap:jeczfn:v:82:y:2003:i:4:p:535-554 is not listed on IDEAS
    20. Dixon, R. & Shepherd, D. & Thomson, J., 2000. "Regional Unemployment Disparities," Department of Economics - Working Papers Series 737, The University of Melbourne.
    21. Gavin Cameron & John Muellbauer, 2001. "Earnings, unemployment, and housing in Britain," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 203-220.
    22. Petchey, Jeffrey D & Shapiro, Perry, 2002. "State Tax and Policy Competition for Mobile Capital," The Economic Record, The Economic Society of Australia, vol. 78(241), pages 175-85, June.
    23. Elias, D Peter B, 1979. "Regional Unemployment Elasticities: Migration or Registration?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 26(1), pages 103-06, February.
    24. Bell, David N F, 1981. "Regional Output: Employment and Unemployment Fluctuations," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 42-60, March.
    25. Nicolaas Groenewold & Alfred J. Hagger & John R. Madden, 2001. "Competitive Federalism: A Political-Economy General Equilibrium Approach," Economics Discussion / Working Papers 01-10, The University of Western Australia, Department of Economics.
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