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Structural Change and Labour Reallocation Across Regions: A Review of the Literature

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The Labour Market Impact of the EU Enlargement

Part of the book series: AIEL Series in Labour Economics ((AIEL))

Abstract

The focus of this chapter is on the microeconomic foundations of structural change and its spatially asymmetric impact on labour markets. EU economies are undergoing dramatic industrial restructuring due to a number of causes, such as the Eastward enlargement and economic integration of Central and Eastern European countries, as well as a more general process of integration of emerging economies into world trade. In turn this is causing technical change, relocation of economic activities and reallocation of capital and labour resources. An overly optimistic view of the ability of the market economy to sustain economic development has long neglected the labour market consequences of structural change, but the availability of new data sets and the specific nature of economic transition in new member states has once again brought this issue to the fore, suggesting that it might also provide an explanation of several typical features of regional imbalances in old member states. The old and new literature suggests theoretical reasoning and empirical evidence to confirm this.

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Notes

  1. 1.

    In 2004, the EU saw its biggest enlargement to date when Malta, Cyprus, Slovenia, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia and Hungary joined the Union. On 1 January 2007, Romania and Bulgaria became the EU's newest members and Slovenia adopted the euro.

  2. 2.

    Notwithstanding Turkey, currently, Croatia and the Former Yugoslav Republic of Macedonia are candidate countries, though accession negotiations have started only for the former country in 2005. All the other Western Balkan countries are potential candidate countries: Albania, Bosnia and Herzegovina, Montenegro, Serbia as well as Kosovo under UN Security Council Resolution 1244/99. The EU has repeatedly reaffirmed at the highest level its commitment for the European perspective of the Western Balkans, provided they fulfill the accession criteria.

  3. 3.

    Until recently, according to Böckerman and Maliranta (2001, p. 87), the research on job reallocation was only based on United States manufacturing industries (so-called “manucentrism”).

  4. 4.

    For a more accurate account of the model see, among others, Roland (2000); Boeri (2000) and Ferragina and Pastore (2008).

  5. 5.

    In this model, employed workers exert no job-search activity.

  6. 6.

    In the model under consideration, the source of structural change is the transition from plan to market. However, as already noted previously, there are many possible sources of structural change and the model can be taken as a theoretical framework to study the labour market impact of structural change.

  7. 7.

    It is a finding of many studies in this branch of literature that the inflow to and outflow from unemployment exhibit a high correlation rate both across regions (see, for instance, Böckerman et al. 2004, Figs. 3 and 4) and across industries (Greenaway et al. 2000, Fig. 4).

  8. 8.

    A similar opinion is expressed in McIntire (cited in Flaim and Hogue 1985, p.16). He is reported to note that “the measurement of months-to-months flows, in addition to being affected by sampling and response errors, are also a reflection of transitory or insignificant movements, the inclusion of which limits the value of the flow data spanning over longer time periods, focusing on changes in “usual” or “primary” labour force status”. See on this point also Blanchard and Portugal (2001, p. 4).

  9. 9.

    As discussed in greater detail in the next section, there could be many reasons why structural change might be region specific.

  10. 10.

    Armstrong and Taylor (1985) use different indices of cyclical and structural factors of unemployment in the UK, finding that they explain over 70% of the cross-regional variation of their male inflow rates into unemployment. Instead labour supply factors seem to explain only a minor part of the dependent variable.

  11. 11.

    As Dunne et al. (1989, p. 49) note: “Since the transition of workers between positions in different plants is not frictionless it is the gross rather than the net employment changes that are of primary importance in analysing the costs, such as unemployment, of fluctuations in labour demand”.

  12. 12.

    Dunne et al. (1989), the first authors to device the index, found similar rates of structural change.

  13. 13.

    By excess job reallocation, it is meant the difference between the gross job reallocation rate (the sum of job creation and destruction) and the absolute value of the net rate of change in employment (the difference between job creation and destruction). The churning rate measures the excess of gross worker flow (sum of separations and job finding) over the gross job reallocation rate.

  14. 14.

    In New Economic Geography theories, trade and capital flows are complement not substitute.

  15. 15.

    An interesting consideration relative to the Italian Mezzogiorno is whether there is a wage curve in Italy and whether wage differentials are able to generate sufficient incentives for regional migration (Lucifora and Origo 1999; Devicienti et al. 2003).

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Acknowledgements

Previous versions of this paper have been presented in seminars at the XXII Conference of AIEL (Italian Association of Labour Economists, Naples, September 2007), V International Conference in Honour of Marco Biagi (University of Modena and Reggio Emilia, March 2007), at the II IZA workshop on: “EU Enlargement and the Labour Markets” (Bonn, September 2007), at the ERSA 2008 Meeting (Liverpool, August 2008) and at a workshop of the Magyar Nemezety Bank (The Central Bank of Hungary, Budapest, August 2008). We thank all seminar participants and, in particular, Vera Adamchik, Marcello Signorelli, Mieczyslaw Socha for comments on earlier versions of this paper. However, the usual disclaimer applies.

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  1. Seconda Università di Napoli and IZA Bonn, via Mazzocchi 5, Santa Maria Capua Vetere (CE), I-81055, Naples, Italy

    Francesco Pastore

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  1. Floro Ernesto Caroleo
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  2. Francesco Pastore
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Correspondence to Francesco Pastore .

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  1. Fac. Economia, Università Napoli Parthenope, Via Medina 40, Napoli, 80133, Italy

    Floro Ernesto Caroleo

  2. Dipto. Discipline Giuspubblicistiche, Seconda Università di Napoli, Palazzo Melzi, Piazza Matteotti, Santa Maria Capua Vetere, 81055, Italy

    Francesco Pastore

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Caroleo, F.E., Pastore, F. (2010). Structural Change and Labour Reallocation Across Regions: A Review of the Literature. In: Caroleo, F., Pastore, F. (eds) The Labour Market Impact of the EU Enlargement. AIEL Series in Labour Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2164-2_2

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