Michael Neugart // Technische Universität Darmstadt
Labour Market Integration Policies and the Convergence of Regions: The Role of Skills and Technology DiffusionResearch Seminars
We study the role of different labour market integration policies oneconomic performance and convergence of two distinct regions in anagent-based model. Production is characterized by a complementaritybetween the quality of the capital stock and the specific skills of workers using the capital stock. Hence, productivity changes in a regionare influenced both by the investment of local firms in high qualitycapital goods and by the evolution of the specific skill distribution ofworkers employed in the region. We show that various labour marketintegration policies yield via differing regional worker flows to distinctregional distributions of specific skills. Through this mechanism relative regional prices are affected determining the shares that the regionscan capture from overall consumption good demand. There occurs tobe a trade-off between aggregate output and convergence of regionswith closed labour markets resulting in relatively high convergence butlow output, and more integrated labour markets yielding higher output but lower convergence. Furthermore, results differ substantially inseveral respects as distinct labour market opening policies are applied.
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