Regional labour force participation across the European Union: a time–space recursive modelling approach with endogenous regressors

Abstract

Regional labour force participation across the European Union: a time-space recursive modelling approach with endogenous regressors. Spatial Economic Analysis. Although there is an abundant regional labour market literature taking a spatial perspective, only a few studies have explored extending the analysis of labour force participation with spatial effects. This paper revisits this important issue, proposing a timespace recursive modelling approach that builds on and appraises Fogli and Veldkamp's methodology from 2011 and finding for the United States that participation rates vary with past values in nearby regions. Major shortcomings in their study are corrected for, including stationarity and the control for endogenous regressors other than the time and space-time-lagged dependent variable using system generalized method of moments (GMM). The paper also highlights interaction effects among explanatory variables for the first time in this context. Using a panel of 108 regions across the European Union over 1986-2010, the results for total, male and female participation rates throw a new light on the socio-economic relevance of different determinants. Importantly, characteristics in neighbouring regions play a significant role, and neglecting endogeneity is found to have serious consequences, underlining increased attention on the specification and estimation of spatial econometric models with endogenous regressors. MOTS CLÉS participation de la population active régions de l'Union européenne, panneaux spatiaux dynamiques, régresseurs endogènes RESUMEN Participación regional de la población activa en la Unión Europea: un enfoque de modelo recursivo tiempoespacio con regresores endógenos. Spatial Economic Analysis. Aunque existen abundantes publicaciones sobre el mercado laboral regional con una perspectiva espacial, solo en unos pocos estudios se ha intentado ampliar con efectos espaciales el análisis de la participación de la población activa. En este artículo revisamos esta cuestión importante proponiendo un enfoque de modelo recursivo tiempo-espacio que valora y se basa en la metodología de Fogli y Veldkamp de 2011, donde se observó que en los Estados Unidos los niveles de participación varían con valores previos en regiones cercanas. Corregimos importantes deficiencias en su estudio, entre ellas la estacionalidad y el control de regresores endógenos que no sean la variable que depende del tiempo y el espacio-tiempo retrasado mediante el método generalizado de momentos (GMM). También se destacan los efectos de interacción entre las variables explicativas por primera vez en este contexto. A partir de un panel de 108 regiones de toda la Unión Europea para el periodo entre 1986 y 2010, los resultados para el nivel de participación total, de mujeres y de hombres, aportan un enfoque nuevo sobre la relevancia socioeconómica de los diferentes determinantes. Pero lo más importante es que las características en las regiones vecinas desempeñan un importante papel y observamos que ignorar la endogeneidad tie...

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“…Future research on social learning and knowledge exchange might provide insight into whether spatial effects arise from direct communication between farmers. The spatial dependence in local participation is related to a dynamic setting where information accumulates, participation rises and eventually flattens out and spatial dependence among local participation rates declines (Halleck Vega & Elhorst, 2017). Due to the data limitation (only crosssectional data were available), the spatio-temporal dynamic issue was not addressed in this study.…”

Labor supply and the business cycle: The “bandwagon worker effect”

“…Table 1 summarizes this strand of literature. We elaborated on this by referencing Halleck‐Vega and Elhorst (2017) and other studies.…”

“…First, a group of studies has offered, from a more general standpoint, empirical evidence on the importance of accounting for spatial effects in the labour market analysis (Cochrane & Poot, 2008; Elhorst, 2001; Halleck‐Vega & Elhorst, 2014, 2017). A second group of studies has more specifically focused on the LFPR analysis from a spatial perspective.…”

“…In the Appendix, we develop the theoretical structure underlying the concept of BWE, explain the concept of reservation wage, describe the aggregation process, define the variables used, and formally derive the notions of the AWE and DWE.9 This behavioural supposition has been proposed, more or less explicitly, byFogli and Veldkamp (2011), Halleck-Vega andElhorst (2014) orHalleck-Vega and Elhorst (2017).10 The variable PR N should be thought of as a sort of a weighted average of the different PRs in the neighboring areas. In a later section, we provide further details to explain how we measure this in practical terms.…”

“…Additionally, papers have investigated the influence of social influence over individuals' decisions to participate in the labour market (e.g., Clark & Summers, 1982;Kapteyn & Woittiez, 1987;Romme, 1990;Vendrik, 1998;Neumark & Postlewaite, 1998). Or more closely related to this research, because they have explicitly adopted a spatial approach, we refer to Fogli and Veldkamp (2011) and Halleck-Vega and Elhorst (2017). 2 However, no one has studied the effect of that social influence on the cyclical sensitivity of the aggregate labour supply.…”