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Regional Unemployment Disparities: An Evaluation of Policy Measures

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Author Info
Nicolaas Groenewold (UWA Business School, The University of Western Australia)
Alfred Hagger (School of Economics, The University of Tasmania)
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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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
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Handle: RePEc:uwa:wpaper:07-05

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  1. 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. [Downloadable!]
  2. Nicolaas Groenewold & Alfred Hagger & John Madden, 2003. "Interregional transfers: A political-economy CGE approach," Papers in Regional Science, Springer, vol. 82(4), pages 535-554, November. [Downloadable!] (restricted)
    Other versions:
  3. Myers, Gordon M., 1990. "Optimality, free mobility, and the regional authority in a federation," Journal of Public Economics, Elsevier, vol. 43(1), pages 107-121, October. [Downloadable!] (restricted)
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  8. Guy Debelle & James Vickery, 1998. "Labour Market Adjustment: Evidence on Interstate Labour Mobility," RBA Research Discussion Papers rdp9801, Reserve Bank of Australia. [Downloadable!]
    Other versions:
  9. 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.
  10. 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.
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  12. Dixon, Robert & Shepherd, David, 2001. "Trends and Cycles in Australian State and Territory Unemployment Rates," The Economic Record, The Economic Society of Australia, vol. 77(238), pages 252-69, September. [Downloadable!] (restricted)
    Other versions:
  13. 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.
  14. 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. [Downloadable!]
  15. David Forrest & Barry Naisbitt, 1988. "The Sensitivity of Regional Unemployment Rates to the National Trade Cycle ," Regional Studies, Taylor and Francis Journals, vol. 22(2), pages 149-153, April. [Downloadable!] (restricted)
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  21. 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. [Downloadable!] (restricted)
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  24. repec:kap:jeczfn:v:82:y:2003:i:4:p:535-554 is not listed on IDEAS
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