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Composite indicator of German regional policy and its use for optimizing subsidies to regional labour markets

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  • Tangian, Andranik S.

Abstract

German structural policy is characterized by a composite indicator with three targets:(1) minimization of unemployment, (2) maximization of GDP, and (3) equalization of regional unemployment rates. The composite indicator with given target weights is maximized subject to budget constraints and some administrative restrictions. The optimal combinations of target indices obtained for variable weight ratios are to be considered by a policy maker who thereby makes the final choice among already optimized outcomes, not being burdened with adjusting the target weights. The optimization is performed for econometric predictions-2004 which are derived from regional data for 1994-2002. Comparing with the optimal budget distribution, the efficiency of the actual "manual" budget distribution in 2000-2002 is about 4%, that is, the results actually obtained for 6 Bio. EUR could be obtained for 241 Mio.EUR (= 4% of the actual budget). Such a bad implementation of active labour market policies can be responsible for their low efficiency reported in some empirical studies and misinterpreted as their uselessness. Besides, it is found that the most productive jobs (most contributing to GDP) require least subsidies. Finally, taxes expected from new jobs allow to consider the problem from a managerial viewpoint. In particular, the government can maximize tax returns from investments in labour market policies.

Suggested Citation

  • Tangian, Andranik S., 2005. "Composite indicator of German regional policy and its use for optimizing subsidies to regional labour markets," WSI Working Papers 138, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
  • Handle: RePEc:zbw:wsidps:138
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Tangian, Andranik, 2007. "Analysis of the third European survey on working conditions with composite indicators," European Journal of Operational Research, Elsevier, vol. 181(1), pages 468-499, August.
    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.

    More about this item

    Keywords

    European Commission; structural funds; regional policy; active labour market policies; equalizing regional unemployment rates; economic growth;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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