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Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?


  • Sari Pekkala
  • Aki Kangasharju


This paper analyses regional labour market adjustment in the Finnish provinces during 1971-96. It investigates the interrelations of employment, unemployment and labour force participation to examine how a change in labour demand is adjusted to. The study questions the usual assumption that positive and negative shocks evoke similar adjustment processes. Instead, we test for the possibility that the effects of positive and negative shocks are asymmetric. The analysis reveals that there is little asymmetry in the adjustment to region‐specific labour demand shocks, but adjustment to total (region‐specific plus common component) shocks displays more asymmetry. The region‐specific component of a labour demand shock has short‐lived effects on unemployment and participation, and its effect on employment is very small but permanent [persistent?]. Initially, most of the fall in employment is absorbed by the unemployment and participation rate, but after a few years migration plays a larger role in the adjustment process. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd 2002.

Suggested Citation

  • Sari Pekkala & Aki Kangasharju, 2002. "Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?," LABOUR, CEIS, vol. 16(2), pages 267-286, June.
  • Handle: RePEc:bla:labour:v:16:y:2002:i:2:p:267-286

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    References listed on IDEAS

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    Cited by:

    1. Pekkala, Sari & Tervo, Hannu, 2002. " Unemployment and Migration: Does Moving Help?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 621-639, December.
    2. Kangasharju, Aki & Pekkala, Sari, 2002. "Adjustment to Regional Labour Market Shocks," Discussion Papers 274, VATT Institute for Economic Research.
    3. Torben Dall Schmidt & Aki Kangasharju & Daniel Rauhut, 2011. "Population Changes and Regional Economic Growth in the Nordic Countries 1994-2006," ERSA conference papers ersa10p922, European Regional Science Association.

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