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An econometric decision model for equalizing regional unemployment in West and East Germany

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  • Tangian, Andranik S.

Abstract

Reducing disparities among regions within European countries is the aim of European and national structural policies. In particular, a European grant contributes to the German governmental program for equalizing regional unemployment. The goal is to bring it down to the national average by creating new and/or by safeguarding existing jobs. In the given paper the distribution of available aid among 271 German labor market regions is considered as an econometric decision problem. At first, the dependence of the unemployment rate on the amount of aid is estimated for each eligible region. Using this dependence, the variance of regional unemployment rates is expressed as a function of the regional subsidies. The optimal aid distribution among regions is obtained by minimizing this variance subject to the total budget constraint and administrative restrictions. The optimal figures computed are compared with statistical data for 2000{2002. They show that the regional unemployment in West Germany could be equalized better (with variance 3.50 against the actual 4.40) and with a simultaneous decrease in the average unemployment in West Germany from 7.45 to 7.28%. In East Germany all regions are eligible, implying no administrative constraints and a high optimization flexibility. It enables almost perfectly equalize regional indices down to the variance 0.28 against the actual 9.76. Under the model assumptions, the actual results of the equalizing policy could be attained by half the budget granted. These underused possibilities explain the low efficiency of active labor market policies reported in empirical studies. To improve their performance, some tools for optimally distributing subsidies and predicting their effects are suggested.

Suggested Citation

  • Tangian, Andranik S., 2003. "An econometric decision model for equalizing regional unemployment in West and East Germany," WSI Working Papers 115, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
  • Handle: RePEc:zbw:wsidps:115
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    Citations

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    Cited by:

    1. Eckhard Hein & Torsten Niechoj, 2005. "Leitlinien für ein dauerhaftes Wachstum in der EU? Konzept und Wirkung der "Grundzüge der Wirtschaftspolitik"," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 31(1), pages 11-40.
    2. Seifert, Hartmut & Tangian, Andranik, 2007. "Flexicurity: Reconciling Social Security with Flexibility - Empirical Findings for Europe," WSI Working Papers 154, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    3. Tangian, Andranik, 2012. "Statistical test for the mathematical theory of democracy," WSI Working Papers 179, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    4. Tangian, Andranik & Seifert, Hartmut, 2006. "Globalization and deregulation : Does flexicurity protect atypically employed?," WSI Working Papers 143, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    5. Tangian, Andranik, 2007. "Flexibility-Flexicurity-Flexinsurance: Response to the European Commission's Green Paper "Modernising Labour Law to Meet the Challenges of the 21st Century"," WSI Working Papers 149, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    6. Tangian, Andranik, 2008. "On the European readiness for flexicurity: Empirical evidence with OECD/HBS methodologies and reform proposals," WSI Working Papers 160, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.

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