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Local labour market heterogeneity in Italy: estimates and simulations using responses to labour demand shocks

Emanuele Ciani (), Francesco David () and Guido de Blasio ()
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Francesco David: Bank of Italy

No 1112, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Using different data sources from local labour markets (LLMs) in Italy between 1971 and 2011, we document a number of stylized facts: a) local differences in the ratios of private employment to population are highly persistent; b) the population has a limited reaction to labour demand shocks, consistent with the high rigidity of nominal wages and pro-cyclical variations in rents, which absorb the gains (losses) from higher (lower) employment rates; c) labour demand shocks are fairly persistent and unevenly distributed, to the detriment of those areas that were already lagging behind and boosting the more advanced ones; d) shocks are amplified by the non-linear employment adjustment, which reacts more to negative shocks than to positive ones. The estimated reactions to shocks are then used to perform policy-motivated simulations. We find that allowing greater population reactions is a superior policy option. Had Italy experienced the population reactivity of the US, local disparities would have been significantly less, to the same extent as with a sizeable public intervention in areas lagging behind.

Keywords: local labour markets; labour demand; shocks. (search for similar items in EconPapers)
JEL-codes: J23 J61 R23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur, nep-lma and nep-ure
Date: 2017-04
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