Nation size and unemployment
Throughout the world, strong dispersions of both regional and national unemployment rates can be observed. The economic theory has developed various explanations on how this differences occur. Corresponding models mainly aim at institutional and political framework, insider effects, efficiency wages, collective bargaining and cyclical effects. However, the size of economies has received little attention in this discussion. In this paper, we will show that there is indeed a strong link between size and unemployment. Using data from 37 countries, 15 continents and trade areas as well as 496 federal states, we will demonstrate that larger economic regions tend to have higher unemployment rates. Subsequently, we show that this correlation is strongly determined by the degree of centralization of countries. Based on these findings, we develop a model that explains regional and national unemployment using size and centralization. We will point out that centralization parabolas can be derived for each country. These curves are strongly influenced by the size of economies in a way that different sizes lead to a shift of the parabolas. As we will demonstrate, country-specific parabolas explain the strong dispersion of unemployment rates quite accurately.
|Date of creation:||2011|
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- Blanchard, Olivier & Wolfers, Justin, 2000.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
Royal Economic Society, vol. 110(462), pages C1-33, March.
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IZA Discussion Papers
2450, Institute for the Study of Labor (IZA).
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- Assar Lindbeck, 1993. "Unemployment and Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121751, June.
- Lorenzo Forni, 2004. "Centralization of wage bargaining and the unemployment rate: revisiting the hump-shape hypothesis," Temi di discussione (Economic working papers) 492, Bank of Italy, Economic Research and International Relations Area.
- Franz Traxler, 2003. "Bargaining (De)centralization, Macroeconomic Performance and Control over the Employment Relationship," British Journal of Industrial Relations, London School of Economics, vol. 41(1), pages 1-27, 03.
- Ricardo J. Caballero & Mohamad L. Hammour, 2001.
"Institutions, Restructuring and Macroeconomic Performance,"
DELTA Working Papers
2001-03, DELTA (Ecole normale supérieure).
- Ricardo J. Caballero & Mohamad L. Hammour, 2000. "Institutions, Restructuring, and Macroeconomic Performance," NBER Working Papers 7720, National Bureau of Economic Research, Inc.
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