Labor market integration policies and the convergence of regions: the role of skills and technology diffusion
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We study the role of different labor market integration policies on economic performance and convergence of two distinct regions in an agent-based model. Production is characterized by a complementarity between the quality of the capital stock and the specific skills of workers using the capital stock. Hence, productivity changes in a region are influenced both by the investment of local firms in high quality capital goods and by the evolution of the specific skill distribution of workers employed in the region. 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 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.
KeywordsLabor market integration Convergence Skill complementarity Agent-based model Regional economics
JEL ClassificationC63 J61
We are gratefully to an anonymous referee and the editors of this special issues for helpful comments. This work was carried out in conjunction with the EURACE project (EU IST FP6 STREP grant 035086) which is a consortium lead by S. Cincotti (University of Genova), H. Dawid (University of Bielefeld), C. Deissenberg (Université de la Mediterrané), K. Erkan (TUBITAK National Research Institute of Electronics and Cryptology), M. Gallegati (Università Politecnica delle Marche), M. Holcombe (University of Sheffield), M. Marchesi (Università di Cagliari), C. Greenough (STFC - Rutherford Appleton Laboratory).
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