Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?
Year Published: 2002
Authors: Sari Pekkala and Aki Kangasharju
This paper analyses regional labour marketadjustmentin the Finnish provinces during 1971–96. It investigates the interrelations of employment,unemployment and labour force participation to examine how a change in labour demand is adjusted to. The study questions the usual assumption that positive and negative shocks evoke similar adjustment processes. Instead, we test for the possibility that the effects of positive and negative shocks are asymmetric. The analysis reveals that there is little asymmetry in the adjustment to region-specific labour demand shocks, butadjustmentto total (region-specific plus common component) shocks displays more asymmetry. The region-specific component of a labour demand shock has short-lived effects on unemployment and participation, and its effecton employmentis very small but permanent[persistent?]. Initially, most of the fall in employment is absorbed by the unemployment and participation rate, but after a few years migration plays a larger role in the adjustment process.