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Labor market integration policies and the convergence of regions: the role of skills and technology diffusion

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  • Herbert Dawid
  • Simon Gemkow
  • Philipp Harting
  • Michael Neugart

Abstract

We study the role of different labor market integration policies on economic performance and convergence of two distinct regions in an agent-based model. Production is characterized by a complementarity between the quality of the capital stock and the specific skills of workers using the capital stock. Hence, productivity changes in a region are influenced both by the investment of local firms in high quality capital goods and by the evolution of the specific skill distribution of workers employed in the region. We show that various labor market integration policies yield, via differing regional worker flows, to distinct regional distributions of specific skills. Through this mechanism, relative regional prices are affected, determining the shares that the regions can capture from overall consumption good demand. There occurs a trade-off between aggregate output and convergence of regions with closed labor markets resulting in relatively high convergence but low output, and more integrated labor markets yielding higher output but lower convergence. Furthermore, results differ substantially in several respects as distinct labor market opening policies are applied.
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Suggested Citation

  • Herbert Dawid & Simon Gemkow & Philipp Harting & Michael Neugart, 2012. "Labor market integration policies and the convergence of regions: the role of skills and technology diffusion," Journal of Evolutionary Economics, Springer, vol. 22(3), pages 543-562, July.
    • Handle: RePEc:spr:joevec:v:22:y:2012:i:3:p:543-562
    DOI: 10.1007/s00191-011-0245-1
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    More about this item

    Keywords

    Labor market integration; Convergence; Skill complementarity; Agent-based model; Regional economics; C63; J61;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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