Self-employment and the Okun's law

Abstract

The present research provides evidence on the determinants driving the differences in the unemploymentoutput relationship in Spanish regions. We followed a two-step approach. First, we estimated a set of time-varying Okun's coefficients (rolling-window) for the autonomous communities in Spain (1981-2013) showing significant regional differences as well as important changes over time. At the second step, we estimated FMOLS and DOLS models to explain regional differences in Okun's law. The results obtained lead to the conclusion that differences in the weight of self-employment and its variations over time prove relevant when accounting for differences in Okun's law between Spanish regions, and its effect (in standard deviations) is greater than that of variations in labour productivity per worker, which so far had been considered the main driver of regional discrepancies. The economic policy implications of this outcome are huge due to the fact that Spanish regional and national authorities are promoting selfemployment.

Crisis, Adjustment and Resilience in the Greek Labor Market: An Unemployment Decomposition Approach

“…Studies at the regional level, for other countries with similar experiences during the crisis (mainly, Spain), have also highlighted structural issues as key determinants for the Okun Law elasticity. For example, Melguizo (2017) has shown the unemployment elasticity to be higher for Spanish provinces with less diversified industries and greater specialization in services; while, for the same country, Bande and Martín-Román (2018) and Porras-Arena and Martin-Roman (2019) provided evidence of heterogeneity in the Okun coefficient at the regional level. 2…”

Sectoral Okun's law and cross-country cyclical differences

“…E.g. seePorras-Arena and Martín-Román, 2019;Guisinger et al, 2018;Durech et al, 2014;Freeman, 2000;Bande and Martin-Roman, 2018;Villaverde and Maza, 2009 for regional differences and Evans, 2018 for demographic differences Abe and Ohta (2001). investigate Japan and Hartwig (2014) study Switzerland at the sector level and found large differences across sectors.2 E.g.…”

Análisis espacial del mercado de trabajo español a nivel macroeconómico: teoría y evidencia empírica.

“…Nevertheless, neither the theoretical setting nor the empirical strategy is the same as ours. Moreover, the aim of their investigation differs from ours.4 See, for instance,Martín-Román, Moral de Blas & Martínez-Matute (2015).5 In this vein,Ball, Leigh, and Loungani (2017),, and Porras-Arena andMartín-Román (2019) have provided empirical evidence of the large size of the Spanish business cycle, particularly with regard to the labour market outcomes.6 The 50 Spanish provinces correspond to the third level (NUTS 3) of the Nomenclature of Territorial Units for statistics, see: http://ec.europa.eu/eurostat/ web/nuts/overview.…”

“…Finalmente, el tercero de los motivos se basa en la elevada sensibilidad cíclica observada en algunas de las variables más importantes del mercado laboral español. Es bien sabido que el caso español se caracteriza por la existencia de ciclos económicos amplios y por el efecto que este ejerce sobre la propia tasa de desempleo en forma de una notable creación de empleo durante los periodos de expansión económica y por una gran destrucción del mismo durante las etapas de recesión (Ball et al, 2019;Bande y Martín-Román, 2018; Porras-Arena y Martín-Román, 2019).…”

“…There are several reasons for that sluggish adjustment, among them we could highlight: (1) employment adjustment costs (e.g. firing and hiring costs, see for instance Cabo and Martín-Román, 2019 for a recent formal model on that); (2) wage staggering (Ascari, 2003;Karanassou and Sala, 2012); (3) price stickiness (Andersen, 1998); or (4) labor force participation adjustment (see for a fresh analysis with a regional economics perspective). This hypothesis might be thought as an intermediate case between the "frictionless equilibrium view" and the "hysteresis view".…”