Empirica – Journal of European Economics

Sponsored by the Austrian Economic Association and the Austrian Institute of Economic Research

Empirica publishes empirical and theoretical work on all economic aspects of European Integration. The topics may range from all challenges concerning the deepening of the European Union (Single Market, Lisbon Agenda, EMU) to enlargement and the external relations of the EU (globalisation).

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In this study we use agents' expectations about the state of the economy to generate indicators of economic activity in 26 European countries grouped in five regions (Western, Eastern, and Southern Europe, and Baltic and Scandinavian countries). We apply a data-driven procedure based on evolutionary computation to transform survey variables in economic growth rates. In a first step, we design five independent experiments to derive a formula using survey variables that best replicate the evolution of economic growth in each region by means of genetic programming, limiting the integration schemes to the main mathematical operations. We then rank survey variables according to their performance in tracking economic activity, finding that agents' "perception about the overall economy compared to last year" is the survey variable with the highest predictive power. In a second step, we assess the out-of-sample forecast accuracy of the evolved indicators. Although we obtain different results across regions, Austria, Slovakia, Portugal, Lithuania and Sweden are the economies of each region that show the best forecast results. We also find evidence that the forecasting performance of the survey-based indicators improves during periods of higher growth.
In the Kreisky era (1970-1983), Austrian government debts increased strongly. Historically, the attitude of Kreisky and the Social Democrats towards Keynesian fiscal policy measures to fight unemployment during the oil crises has been held to be responsible for the successive budget deficits. Kreisky's ideological debt policy has become a narrative that has strongly influenced Austrian fiscal policy until today. While this explanation for the strong increase in public debt during the Kreisky era is widely accepted, it is not necessarily true. In this paper, we assess a different explanation: the deficits might simply have resulted from forecast errors of GDP growth in those turbulent times. We find that about one-third of the increase in the debt-over-GDP ratio is directly explained by short-run forecast errors, i.e., the difference between the approved and the realised budget, and an additional one-fifth is the lower bound of forecast error regarding the long-run growth rate.
The aim of this paper is to explore how shifts in employment structure affect earnings dynamics and wage inequality throughout the wage distribution in four European countries (France, Germany, Italy, and the UK). Through UQR on the EU-SILC data, the analysis achieves two purposes: 1. understanding the primary forces of the wage and wage inequality generating process; 2. evaluating the changes over time in the marginal quantile of wage distribution and the changes in inequality at different points of the distribution. The results highlight the role of the occupational patterns in wage dynamics. France and Germany show decreasing patterns of wage inequality, despite having opposite changes in wages. Their respective well-defined structures (upgrading of occupations and job polarisation) have an equalising effect on the wage distribution. The UK and Italy show increasing patterns of wage inequality although maintaining opposite changes in wages. While the relative upgrading in the UK has only slowed inequality growth, the more hybrid pattern of Italian employment structure has contributed to raise the overall inequality.
This paper analyses unemployment insurance schemes in the presence of mobile workers and trade unions at industry or country level that are capable of internalising the effect of wage demands on unemployment insurance contribution rates. We compare two types of existing unemployment insurance systems. When unemployment insurance is organised at trade union level (decentralized Ghent unemployment insurance), trade unions strategically lower the benefit levels of their unemployment insurance schemes to deter welfare recipients from other unions from entering their unemployment insurance scheme, leading to a race to the bottom in unemployment insurance provision. With centralised provision of unemployment insurance, by contrast, trade unions do not fully account for the cost of higher wages as mobility allows them to partially shift the burden of unemployment to other unemployment insurances. A system of coordinated unemployment insurance, combining a centrally set benefit level with decentralised funding as in Ghent unemployment insurance systems, can circumvent both the strategic benefit setting and the fiscal externality problems, thus reconciling the equity and efficiency aims in the design of unemployment insurance.
Profits that persist above or below the norm for prolonged periods of time reveal a lack of competition and imply a systematic misallocation of resources. Competition, if unimpeded, should restore profits to normal levels within a relatively short time frame. The dynamics of profits can thus reveal a great deal about the competitiveness of an economy. This paper estimates the persistence of profits across the European Union, which adds to our understanding of the competitiveness of 18 EU member countries. By using a sample of approximately 4,700 firms with 51,000 observations across the time period of 1995-2013, we find differences in the persistence of short-run profits, implying that there are differences in competitiveness across the EU. The Czech Republic and Greece are among the countries with the highest profit persistence, whereas the UK is among those with the lowest persistence of profits. Furthermore, we provide evidence that there are significant permanent rents present in the EU across countries as well as in the different broad sectors across the EU.
We estimate a quantile structural vector autoregressive model for the Euro area to assess the real effects of uncertainty shocks in expansions and recessions using monthly data covering the period of February 1999 to May 2016. Domestic and foreign (US) uncertainty shocks hitting during recessions are found to produce a relatively overall stronger negative impact on output growth than in expansions, with US shocks having more pronounced effects. Inflation, in general, is unaffected from a statistical perspective. Our results tend to suggest that policy-makers need to implement state-dependent policies, with stimulous policies being more aggressive during recessions – something we see from our results in terms of stronger declines in the interest rate during bad times.
Secularly declining GDP investment shares are often explained by the widespread fall in the relative price of investment goods. Granger non-causality tests applied to longer-term time series for a large number of industrial countries tend to reject that explanation.
Unemployed workers in Austria are allowed to top up unemployment benefits with a certain amount of earnings from employment without any benefit reduction. We do not find evidence that entering such "marginal employment" during unemployment acts as a stepping stone to regular employment. On the contrary, it tends to prolong the unemployment spell and hence reduces the time spent in regular employment within a three-year period. Moreover, marginal employment during the unemployment spell leads to lower earnings. It inhibits the return to regular employment probably due to a high implicit tax rate on additional income.
Peter Huber, Dieter Pennerstorfer
in: Peter Huber, Dieter Pennerstorfer, Digitalization, Urban Sprawl and Regional Economics – Selected Papers of the 10th WIFO Regional Economics Workshop at the Austrian Institute of Economic Research, Vienna, 25-26 September 2017
Empirica, 2019, 46(1), S.1-3, http://www.springer.com/10663
Lorenz Benedikt Fischer
in: Peter Huber, Dieter Pennerstorfer, Digitalization, Urban Sprawl and Regional Economics – Selected Papers of the 10th WIFO Regional Economics Workshop at the Austrian Institute of Economic Research, Vienna, 25-26 September 2017
Empirica, 2019, 46(1), S.5-29, http://www.springer.com/10663
This paper attempts to explain the seeming unresponsiveness of labour to react to economic disparities in terms of migration. In theory, the potential of workers to implicitly alleviate regional disparities in, for example, unemployment or wage levels by relocating appears potent, but finds little support empirically. To resolve this perplexity, a dynamic discrete choice model is used, which translates into a two stage estimation strategy for recovering structural parameters. Investigating Austrian bilateral movements on the NUTS 3 level from 2002 to 2014, the results suggest that this unresponsiveness builds on two pillars. First, estimated average migration costs are in the range of six times the average annual wage, which appears sizable enough to prevent taking advantage of economic opportunities for workers. These costs are shown to have decreased over time, though. Second, the relatively high variation in the random utility shifter can be interpreted as relative unimportance of regional disparities in forming migration decisions. Finally, a spatial approach on estimated regional valuations reveals an apparent "beauty contest" of regions, where regions' own valuations suffer from proximity to highly attractive ones.
Managing Editor

Univ.-Prof. Mag. Dr. Fritz Breuss

Funktion: Wissenschaftlicher Mitarbeiter, Managing Editor Empirica