Labour Market Flexibility and Regional Unemployment Rate Dynamics: Spain (1980-1995)



Table 5: High unemployment group of regions

Labour demand: nit         Wage setting: wit           Labour supply: lit

coef. p-value                coef. p-value.               coef. p-value

nit-1     0.52     0.00         wit-1     0.80       0.00        lit-1     0.73       0.00

(            (0.05)                               (            (0.04)                                (            (0.05)

wit  -0.32    0.00           uit  -0.14      0.14         wit  -0.14      0.00

(0.03)                                       (0.09)                                         (0.03)

kit     0.25    0.00          ∆uit     0.63       0.00      wit-1     0.07      0.07

(0.04)                                            (0.09)                                ’            (0.03)

kit     1.22    0.00           prit     0.17       0.00       popit    0.45      0.00

(0.21)                                         (0.05)                                         (0.08)

oilt   -0.03    0.00             bt     0.34       0.00     ∆popit    0.71      0.00

(0.01)                                          (0.07)                                         (0.22)

taxt   -0.43    0.20          bt-1   -0.31       0.00

(0.33)                                         (0.07)

impt -0.08      0.00

(0.03)

impt-1    0.07       0.03

(0.03)

MLL=417.85           MLL=399.48            MLL=494.00

S.E.=0.020_______________S.E.=0.022_________________S.E.=0.013_____________

Standard errors in parentheses; denotes the difference operator.

MLL is the maximum log likelihood; S.E. is the standard error of the model.

Table 6: Low unemployment group of regions

Labour demand: nit         Wage setting: wit          Labour supply: lit

coef. p-value                coef. p-value.              coef. p-value

nit-1     0.78    0.00         wit-1     0.64       0.00      lit-1     0.59      0.00

’            (0.09)                               ’            (0.01)                              ’            (0.07)

nit-2   -0.27    0.00            uit   -0.21       0.14        wit   -0.15      0.01

,          (0.09)                                            (0.14)                                           (0.05)

wit  -0.20    0.00         ∆uit    0.63       0.00     wit-1    0.13      0.02

(0.05)                                              (0.15)                              ’            (0.05)

kit    0.17    0.00           prit    0.22       0.03      popit    0.56      0.00

(0.05)                                         (0.09)                                        (0.12)

kit    0.69    0.00             bt     0.17       0.21

(0.24)                                         (01.3)

oilt   -0.05    0.00           bt-1   -0.16       0.15

(0.01)                                         (0.10)

taxt  -0.80    0.14        impt  -0.17      0.00

(0.52)                                         (0.04)

impt-1    0.12       0.00

(0.04)

MLL=216.13           MLL=210.39            MLL=245.86

S.E.=0.020_______________S.E.=0.025_________________S.E.=0.017_____________

Standard errors in parentheses; denotes the difference operator.

MLL is the maximum log likelihood; S.E. is the standard error of the model.

It is important to note that an essential feature of the above estimations is that the
unemployment rate is influenced by the size of the capital stock both in the short-run
and long-run. This is another salient feature of the CRT and is in sharp contrast to the
influential form of the literature that asserts that policies that shift upward the time path
of capital stock have no long-run effect on the unemployment rate (see Layard et al., 1991).
This assertion derives from the observation that the unemployment rate is trendless in
the long-run. However, Karanassou and Snower (2004) argue that there is no reason to
believe that the labour market alone is responsible for ensuring that the unemployment

15



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