Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?

20 Pages Posted: 20 Mar 2003

See all articles by Sari Pekkala

Sari Pekkala

University of Jyväskylä - School of Business and Economics

Aki Kangasharju

Government of the Republic of Finland - VATT Institute for Economic Research

Abstract

This paper analyses regional labour market adjustment in 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, but adjustment to 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 effect on employment is 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.

Suggested Citation

Pekkala, Sari and Kangasharju, Aki, Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?. Available at SSRN: https://ssrn.com/abstract=313687

Sari Pekkala (Contact Author)

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

Aki Kangasharju

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Hameentie 3
as of the beginning of 2001
00531 Helsinki
Finland

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