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Labour market adjustments in Europe and the US: How different?

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  • Smets, Frank
  • Beyer, Robert C. M.

Abstract

We compare the labour market response to region-specific shocks in Europe and the US and to national shocks in Europe and investigate changes over time. We employ a multi-level factor model to decompose regional labour market variables and then estimate the dynamic response of the employment level, the employment rate and the participation rate using the region-specific variables and the country factors. We find that both in Europe and the US labour mobility accounts for about 50% of the long run adjustment to region-specific labour demand shocks and only a little more in the US than in Europe, where adjustment takes twice as long. In Europe labour mobility is a less important adjustment mechanism in response to country-specific labour demand shocks that cause stronger and more persistent reactions of the employment and the participation rate. However, we detect a convergence of the adjustment processes in Europe and the US, reflecting both a fall in interstate migration in the US and a rise in the role of migration in Europe. Finally, we show that part of the difference between Europe and the US in previous studies may be due to the use of different data sources. JEL Classification: F2, J6, R23, R30

Suggested Citation

  • Smets, Frank & Beyer, Robert C. M., 2015. "Labour market adjustments in Europe and the US: How different?," Working Paper Series 1767, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20151767
    Note: 58657
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1767.en.pdf
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    5. Olivier Damette & Mathilde Maurel & Michael A. Stemmer, 2016. "What does it take to grow out of recession? An error-correction approach towards growth convergence of European and transition countries," Documents de travail du Centre d'Economie de la Sorbonne 16041, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    6. Heinisch, Katja & Holtemöller, Oliver & Schult, Christoph, 2020. "Power generation and structural change: Quantifying economic effects of the coal phase-out in Germany," IWH Discussion Papers 16/2019, Halle Institute for Economic Research (IWH).
    7. Michael Amior & Alan Manning, 2018. "The Persistence of Local Joblessness," American Economic Review, American Economic Association, vol. 108(7), pages 1942-1970, July.
    8. Braun, Sebastian Till & Weber, Henning, 2016. "How do regional labor markets adjust to immigration? A dynamic analysis for post-war Germany," Discussion Papers 05/2016, Deutsche Bundesbank.
    9. Giuseppe Bertola & John Driffill & Harold James & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi, 2015. "Chapter 3: European Regional Disparity: Borders Strike Back," EEAG Report on the European Economy, CESifo, vol. 0, pages 66-77, February.
    10. Florence Huart & Médédé Tchakpalla, 2019. "Labor Market Conditions and Geographic Mobility in the Eurozone," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(2), pages 263-284, June.
    11. Barslund, Mikkel & Busse, Matthias, 2016. "Labour Mobility in the EU: Addressing challenges and ensuring ‘fair mobility’," CEPS Papers 11705, Centre for European Policy Studies.
    12. Mai Dao & Davide Furceri & Prakash Loungani, 2014. "Regional Labor Market Adjustments in the United States," IMF Working Papers 2014/211, International Monetary Fund.
    13. Jeroen Hessel, 2019. "Medium-term asymmetric fluctuations and EMU as an optimum currency area," DNB Working Papers 644, Netherlands Central Bank, Research Department.
    14. Peter Huber, 2018. "The Role of Migration as Adjustment Mechanism in the Crisis and EMU," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 66(6), pages 1497-1508.
    15. Bakas, Dimitrios & Panagiotidis, Theodore & Pelloni, Gianluigi, 2016. "On the significance of labour reallocation for European unemployment: Evidence from a panel of 15 countries," Journal of Empirical Finance, Elsevier, vol. 39(PB), pages 229-240.
    16. Robert Beyer & Michael Stemmer, 2015. "From progress to nightmare - European regional unemployment over time," DNB Working Papers 458, Netherlands Central Bank, Research Department.
    17. Harald Oberhofer & Christian Glocker & Werner Hölzl & Peter Huber & Serguei Kaniovski & Klaus Nowotny & Michael Pfaffermayr & Monique Ebell & Nikolaos Kontogiannis, 2016. "Single Market Transmission Mechanisms Before, During and After the 2008-09 Crisis. A Quantitative Assessment," WIFO Studies, WIFO, number 59156, March.
    18. Plamen Nikolov & Paolo Pasimeni, 2019. "Fiscal Stabilization in the United States: Lessons for Monetary Unions," Economics Working Paper Archive wp_926, Levy Economics Institute.
    19. Oei, Pao-Yu & Hermann, Hauke & Herpich, Philipp & Holtemöller, Oliver & Lünenbürger, Benjamin & Schult, Christoph, 2020. "Coal phase-out in Germany – Implications and policies for affected regions," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    20. Beblavý, Miroslav & Marconi, Gabriele & Maselli,Ilaria, 2015. "A European Unemployment Benefits Scheme: The rationale and the challenges ahead," CEPS Papers 10952, Centre for European Policy Studies.
    21. Helge Berger & Giovanni Dell’Ariccia & Maurice Obstfeld, 2019. "Revisiting the Economic Case for Fiscal Union in the Euro Area," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(3), pages 657-683, September.
    22. Christopher House & Christian Proebsting & Linda Tesar, 2018. "The Benefits of Labor Mobility in a Currency Union," 2018 Meeting Papers 876, Society for Economic Dynamics.
    23. László Andor, 2016. "Towards shared unemployment insurance in the euro area," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-15, December.

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    More about this item

    Keywords

    European integration; labour mobility; migration; regional labour markets;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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