IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa10p810.html
   My bibliography  Save this paper

Structural change and regional disparities in (un)employment

Author

Listed:
  • Oliver Ludewig

  • Uwe Blien

Abstract

One of the key issues in economics is the explanation of unemployment. Doing so "modern mainstream macroeconomics" frequently refers to institutional structures in the individual countries (e.g. Layard, Nickell & Jackman 1991, 2006; Carlin & Soskice 2006). However, unemployment within states varies as much as between these countries. In Germany, for example, there are regions in which even during the crisis virtual full employment prevails (e.g. Munich Area) and others which face a deep labour market crisis (e.g. Ruhr Area). Within a country, however, there are only minor differences in the institutions. Therefore the large variation in regional unemployment is puzzling. We explain this regional variation of unemployment building on structural change and technical progress. The price elasticity of demand changes across the industry/product life cycle. The more mature an industry is the less elastic is demand. Technical progress has two opposing effects on employment. Increased productivity allows producing a given quantity wit less labour. This is the displacement effect of technical progress. However, technical progress decreases costs which lead to a drop in price. This in turn increases product demand and therefore labour demand rises. A compensation effect occurs. How strong this effect is and whether it may even "overcompensate" depends on the price elasticity of demand and therefore on the industry life cycle. However, each region has a specific industry mix and industries are regionally concentrated (Krugman 1991). The development of a region depends strongly on the demand elasticities of the dominant industries. Thus the mechanism of product life cycle, price elasticity and technical progress leads through the specialisation of regional economies to different spatial development paths of employment. We show formally that a transition from the elastic into the inelastic demand function for the dominant industries can plunge a region into crisis. Empirically we estimate Marshallian type demand functions using an instrumental variables estimator and industry level data to derive the price elasticities for different industries. In a second step these elasticities and the regional industry structure are used to explain regional (un)employment. The results support our theoretical reasoning.

Suggested Citation

  • Oliver Ludewig & Uwe Blien, 2011. "Structural change and regional disparities in (un)employment," ERSA conference papers ersa10p810, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa10p810
    as

    Download full text from publisher

    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa10/ERSA2010finalpaper810.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 383-387, May.
    2. repec:hum:wpaper:sfb649dp2006-004 is not listed on IDEAS
    3. Abernathy, William J. & Clark, Kim B., 1985. "Innovation: Mapping the winds of creative destruction," Research Policy, Elsevier, vol. 14(1), pages 3-22, February.
    4. Thijs ten Raa & Ronald Schettkat (ed.), 2001. "The Growth of Service Industries," Books, Edward Elgar Publishing, number 2137, June.
    5. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-653, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lalit Manral, 2015. "The demand-side dynamics of entrant heterogeneity," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 401-445, April.
    2. Ron Boschma & Riccardo Cappelli & Anet Weterings, 2017. "Labour mobility, skill-relatedness and plant survival over the industry life cycle: Evidence from new Dutch plants," Papers in Evolutionary Economic Geography (PEEG) 1731, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Dec 2017.
    3. de Vaan, Mathijs, 2014. "Interfirm networks in periods of technological turbulence and stability," Research Policy, Elsevier, vol. 43(10), pages 1666-1680.
    4. Jackie Krafft, 2004. "Shakeout in industrial dynamics: new developments, new puzzles," Chapters, in: John Foster & Werner Hölzl (ed.), Applied Evolutionary Economics and Complex Systems, chapter 8, Edward Elgar Publishing.
    5. Michael Dietrich & Jackie Krafft, 2012. "Economics and Theory of the Firm, Chap. 1 of the Handbook on Economics and Theory of the Firm, M. Dietrich and Jackie Krafft (eds), Edward Elgar: Cheltenham, 2012," Post-Print halshs-00742302, HAL.
    6. Utterback, James M., 1941- & Suárez, Fernando F., 1960-, 1992. "Patterns of industrial evolution, dominant designs, and firms' survival," Working papers #79-92. Working paper (Sl, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Dennys Eduardo Rossetto & Roberto Carlos Bernardes & Felipe Mendes Borini & Cristiane Chaves Gattaz, 2018. "Structure and evolution of innovation research in the last 60 years: review and future trends in the field of business through the citations and co-citations analysis," Scientometrics, Springer;Akadémiai Kiadó, vol. 115(3), pages 1329-1363, June.
    8. Huenteler, Joern & Schmidt, Tobias S. & Ossenbrink, Jan & Hoffmann, Volker H., 2016. "Technology life-cycles in the energy sector — Technological characteristics and the role of deployment for innovation," Technological Forecasting and Social Change, Elsevier, vol. 104(C), pages 102-121.
    9. Riccardo Cappelli & Ron Boschma & Anet Weterings, 2019. "Labour mobility, skill-relatedness and new plant survival across different development stages of an industry," Environment and Planning A, , vol. 51(4), pages 869-890, June.
    10. Murmann, Johann Peter & Frenken, Koen, 2006. "Toward a systematic framework for research on dominant designs, technological innovations, and industrial change," Research Policy, Elsevier, vol. 35(7), pages 925-952, September.
    11. Ajay Bhaskarabhatla, 2016. "The Moderating Role of Submarket Dynamics on the Product Customization–Firm Survival Relationship," Organization Science, INFORMS, vol. 27(4), pages 1049-1064, August.
    12. Constance E. Helfat & Miguel A. Campo-Rembado, 2016. "Integrative Capabilities, Vertical Integration, and Innovation Over Successive Technology Lifecycles," Organization Science, INFORMS, vol. 27(2), pages 249-264, April.
    13. Nicoló Barbieri & François Perruchas & Davide Consoli, 2020. "Specialization, Diversification, and Environmental Technology Life Cycle," Economic Geography, Taylor & Francis Journals, vol. 96(2), pages 161-186, March.
    14. Michael Dietrich & Jackie Krafft, 2012. "The Economics and Theory of the Firm," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 1, Edward Elgar Publishing.
    15. Uwe Blien & Oliver Ludewig, 2014. "Technological progress and regional disparities in (un)employment," ERSA conference papers ersa14p261, European Regional Science Association.
    16. repec:diw:diwwpp:dp188 is not listed on IDEAS
    17. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.
    18. Heineck, Guido & Süssmuth, Bernd, 2013. "A different look at Lenin’s legacy: Social capital and risk taking in the Two Germanies," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 789-803.
    19. Cécile Fonrouge & Cécile Ayerbe, 2005. "Les transitions entre innovations : études de cas et proposition d'une grille d'interprétation," Post-Print halshs-00696111, HAL.
    20. Andrés Felipe Martínez, 2006. "Determinantes de la supervivencia de empresas industriales en el área metropolitana de Cali 1994-2003," Ensayos Sobre Economía Regional (ESER) 2320, Banco de la República - Economía Regional.
    21. Diego Comin & Ramana Nanda, 2019. "Financial Development and Technology Diffusion," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(2), pages 395-419, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p810. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gunther Maier (email available below). General contact details of provider: http://www.ersa.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.