Threshold for employment and unemployment. A spatial analysis of German RLM's 1992-2000
Christian Dreger, Reinhold Kosfeld
External Publications,
2006
Abstract
Changes in production and employment are closely related over the course of the business cycle. However, as exemplified by the laws of Verdoorn (1949, 1993) and Okun (1962, 1970), thresholds seem to be present in the relationship. Due to capacity reserves of the firms, output growth must exceed certain levels for the creation of new jobs or a fall in the unemployment rate. While Verdoorn's law focuses on the growth rate of output sufficient for an increase in employment, in Okun's law, the fall in the unemployment rate becomes the focus of attention. In order to assess the future development of employment and unemployment, these thresholds have to be taken into account. They serve as important guidelines for policymakers. In contrast to previous studies, we present joint estimates for both the employment and unemployment threshold. Due to demographic patterns and institutional settings on the labour market, the two thresholds can differ, implying that minimum output growth needed for a rise in employment may not be sufficient for a simultaneous drop in the unemployment rate. Second, regional information is considered to a large extent. In particular, the analysis is carried out using a sample of 180 German regional labour markets, see Eckey (2001). Since the cross-sections are separated by the flows of job commuters, they correspond to travel-to-work areas. Labour mobility is high within a market, but low among the entities. As the sectoral decomposition of economic activities varies across the regions, the thresholds are founded on a heterogeneous experience, leading to more reliable estimates.The contribution to the literature is twofold. First, to the best of our knowledge, no previous paper has investigated a similar broad regional dataset for the German economy as a whole before. By using a panel dataset, information on the regional distributions around the regression lines as well as theirs positional changes is provided for each year. Second, the methods applied are of new type. They involve a mixture of pooled and spatial econometric techniques. Dependencies across the regions may result from common or idiosyncratic (region specific) shocks. In particular, the eigenfunction decomposition approach suggested by Griffith (1996, 2000) is used to identify spatial and non-spatial components in regression analysis. As the spatial pattern may vary over time, inference is conducted on the base of a spatial SUR model. Due to this setting, efficient estimates of the thresholds are obtained. With the aid of a geographic information system (GIS) variation of the spatial components can be made transparent. With Verdoorn’s and Okun’s law the figures show some significant patterns become obvious over time. In respect to Verdoorn’s law, for instance, a stripe of high values in the north-western part from Schleswig-Holstein via Lower Saxony and North Rhine Westfalia to Rhineland Palatinate is striking in all years but 1994 and 1995. In most periods the spatial component is likewise concentrated in Saxony. Clusters of low values can be found in northern Bavaria and, in some periods, in Thüringen and Mecklenburg-Vorpommern. Other parts of Germany appear to be more fragmented consisting of relative small clusters of low, medium and high values of the spatial component. With Okun’s law some changing spatial patterns arise. In all, spatially filtering provides valuable insights into the spatial dimensions of the laws of Verdoorn and Okun.
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Macroeconomic Modelling of the German Economy in the Framework of Euroland
Rüdiger Pohl, Heinz P. Galler
Schriften des IWH,
No. 11,
2002
Abstract
An attempt to develop a new macroeconometric model for Germany is confronted with several questions that range from the general rationality of such an approach to specific problems of an appropriate model structure. One important aspect of this discussion is the introduction of the Euro as a common currency of the European monetary union. This institutional change may result in structural breaks due to changing behavior of economic agents. In addition, the definition of the spatial unit that is appropriate for modelling becomes a problem. Additional problems come from the introduction of the European Single Market and the increasing international economic integration not only within the European union but also beyond its borders. And in the case of Germany, the unification of the West and the East demand special attention. Last but not least, the harmonization of national accounting for the member states of the European Union has to be dealt with. Thus, the introduction of the Euro as a common currency is just one problem besides others that must be addressed.
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A Spatial Model of the State
Ulrich Blum, Leonard Dudley
Zeitschrift für die gesamte Staatswissenschaft (Journal of Institutional and Theoretical Economics),
1991
Abstract
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