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Regional unemployment and productivity in Europe

Author

Listed:
  • Basile, Roberto
  • De Benedictis, Luca

Abstract

We analyse the relationship between regional unemployment and labour productivity in Europe, basing our empirical analysis on the predictions of a Neary†type General Oligopolistic Equilibrium trade model with efficiency†wages. Using semiparametric and dynamic panel data estimators and controlling for other factors, we give evidence of a nonlinear relationship between productivity and regional unemployment in Europe: with a level of productivity smaller than a certain threshold, this relationship is negative, while no relation occurs in the case of higher productivity regions. This evidence proves an important role of a wage†floor (induced by efficiency wages and exacerbated by institutional factors) under which the productivity gap cannot be compensated by a wage gap.

Suggested Citation

Handle: RePEc:eee:paresc:v:87:y:2008:i:2:p:173-193
DOI: 10.1111/j.1435-5957.2007.00152.x
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JEL classification:

  • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
  • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
  • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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