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Nation size and unemployment

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  • Berthold, Norbert
  • Gründler, Klaus
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    Abstract

    Throughout the world, strong dispersions of both regional and national unemployment rates can be observed. The economic theory has developed various explanations on how this differences occur. Corresponding models mainly aim at institutional and political framework, insider effects, efficiency wages, collective bargaining and cyclical effects. However, the size of economies has received little attention in this discussion. In this paper, we will show that there is indeed a strong link between size and unemployment. Using data from 37 countries, 15 continents and trade areas as well as 496 federal states, we will demonstrate that larger economic regions tend to have higher unemployment rates. Subsequently, we show that this correlation is strongly determined by the degree of centralization of countries. Based on these findings, we develop a model that explains regional and national unemployment using size and centralization. We will point out that centralization parabolas can be derived for each country. These curves are strongly influenced by the size of economies in a way that different sizes lead to a shift of the parabolas. As we will demonstrate, country-specific parabolas explain the strong dispersion of unemployment rates quite accurately. --

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    Bibliographic Info

    Paper provided by Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik in its series Wirtschaftswissenschaftliche Beiträge with number 116.

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    Date of creation: 2011
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    Handle: RePEc:zbw:wuewwb:116

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    Keywords: unemployment; size; centralization;

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    References

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    1. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
    2. Ricardo J. Caballero & Mohamad L. Hammour, 2001. "Institutions, Restructuring and Macroeconomic Performance," DELTA Working Papers, DELTA (Ecole normale supérieure) 2001-03, DELTA (Ecole normale supérieure).
    3. Haltiwanger, John C. & Scarpetta, Stefano & Schweiger, Helena, 2006. "Assessing Job Flows across Countries: The Role of Industry, Firm Size and Regulations," IZA Discussion Papers 2450, Institute for the Study of Labor (IZA).
    4. Franz Traxler, 2003. "Bargaining (De)centralization, Macroeconomic Performance and Control over the Employment Relationship," British Journal of Industrial Relations, London School of Economics, vol. 41(1), pages 1-27, 03.
    5. Lorenzo Forni, 2004. "Centralization of wage bargaining and the unemployment rate: revisiting the hump-shape hypothesis," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 492, Bank of Italy, Economic Research and International Relations Area.
    6. Assar Lindbeck, 1993. "Unemployment and Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121751, December.
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    1. Country size and the unemployment rate
      by Economic Logician in Economic Logic on 2012-02-24 15:16:00

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