Regional Mismatch and Unemployment: Theory and Evidence from Italy, 1977-1998

Marco Manacorda () and Barbara Petrongolo
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Marco Manacorda: CELPE University of Salerno, Queen Mary university of London

CELPE Discussion Papers from CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy

Abstract: This paper describes the functioning of a two-region economy characterized by asymmetric wage-setting. Labor market tightness in one region (the leading-region) affects wages in the whole economy. IN equilibrium, net labor demand shifts towards the leading region raise unemployment in the rest of the economy and leave regional wages unchanged, causing an increase in aggregate unemployment. This model has some success in explaining the evolution of regional unemployment rates in Italy during the period 1977-1998. Based on SHIW micro data on earnings and ISTAT data on unemployment rates we find strong evidence that wages in Italy only respond to labor market tightness in the North. We estimate that around one third of the increase in aggregate unemployment in Italy can be explained by regional mismatch, mainly due to an excess labor supply growth in the South.

Keywords: Regional imbalances; Wage curve; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 J23 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-ltv, nep-mac and nep-ure
Date: 2005-01
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Journal Article: Regional mismatch and unemployment: theory and evidence from Italy, 1977–1998 (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:sal:celpdp:90

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