Labor market integration policies and the convergence of regions: the role of skills and technology diffusion

Abstract

We study the role of different labor market integration policies on economic performance and convergence of two distinct regions in an agent-based model. Due to a complementarity between the cost saving nature of capital goods with a higher quality and specific skills needed to fully exploit the technologically advanced capital stock, distinct labor market policies result in non-trivially different outcomes. We show that various labor market integration policies yield via differing regional worker flows to distinct regional distributions of specific skills. Through this mechanism relative regional prices are affected determining the shares that the regions can capture from overall consumption good demand. There occurs to be a trade-off between aggregate output and convergence of regions with closed labor markets resulting in relatively high convergence but low output, and more integrated labor markets yielding higher output but lower convergence. Furthermore, results differ substantially in several respects as distinct labor market opening policies are applied.

Crowdworking: working with or against the crowd?

“…Agent-based models can also be used to approximate the effects of labour market reforms upon unemployment and income inequalities (Dosi et al 2016). Other examples can be found in Dawid et al (2012Dawid et al ( , 2014, where an agent-based model is applied to analyse the convergence of regions characterized by local labour markets and heterogeneous skills. All these areas benefit from the bottom-up approach, in which we only need to understand the behaviour of the agents, i.e.…”

Fiscal transfers and regional economic growth

“…Rather, we describe only the main aspects of the model, which are crucial for the understanding of the mechanisms driving the policy results discussed below. The description of the model is to a large extent identical to the ones given in Dawid et al (, , ), since the multiregional setup used here is similar to that underlying those previous analyses. However, the policy agenda of this paper is quite different from the earlier contributions, which focus on the comparison of different variants of cohesion policies.…”

“…Our simulation model has been shown to reproduce a large set of empirical stylized facts on different levels of aggregation. In this contribution and unlike previous policy analyses that we have conducted with the Eurace@Unibi model (see, e.g., Dawid, Gemkow, Harting, Neugart, Kabus, & Wersching, ; Dawid, Gemkow, Harting, & Neugart, , Dawid, Harting, & Neugart, ), we consider a setting where the economy consists of a core region and a periphery region, which differ both with respect to size and their (initial) level of technology. The average quality of the physical capital endowment and the specific skills are initially substantially larger in the core region.…”

“…In the framework of the “Keynes meeting Schumpeter” class of agent‐based macroeconomic models Dosi, Fagiolo, Napoletano, and Roventini () observe a positive effect of expansionary fiscal policy, which is oriented towards strengthening demand, for growth and, consistent with these insights, the authors find in Dosi, Fagiolo, Napoletano, Roventini, and Treibich () that policies requiring fiscal cuts in case of high public debts or deficits are detrimental for growth. Multiregional policy analyses using an agent‐based approach have, for example, been carried out in Dawid et al () studying the effect of labor market integration policies on the convergence of regions, and in Dawid, Harting, and Neugart (), examining the effectiveness of different instruments of cohesion policies for the convergence of regions. Wolf, Fürst, Mandel, Lass, Lincke, Pablo‐Martí, and Jaeger () present a multiregional agent‐based macroeconomic framework that has been developed to address issues in environmental and climate policy.…”

Agent-Based Models of the Labor Market

“…These effects are due to the technological spillovers through the labor market and demand induces investment incentives for producers in that region. Using the same framework, Dawid et al (2011b) also looked into labor market integration policies establishing a trade-off between aggregate output and convergence of regions. There, it is shown that closed labor markets result in relatively high convergence but generate low output while more integrated labor markets yield higher output but lower convergence.…”