Does labour market reorganization reduce unemployment?

Abstract

This study addresses the connection between reorganization and unemployment in the labour market. Reorganization of regional labour markets measured by simultaneous gross migration flows lowers the unemployment rate, based on evidence from a panel of Finnish regions. However, reorganization is shown to be unrelated to long-term unemployment.

Notes

There have been some previous empirical studies that investigate the effect of net in-migration on the regional unemployment rates (see, for example, Elhorst, 2003), but these studies exclude the use of gross migration flows as a measure of reorganization between regions. In particular, Chalmers and Greenwood (1985) argue that the effect of net in-migration on regional unemployment is an empirical question and cannot be solved by theoretical considerations owing to the fact that net in-migration causes both regional labour supply and demand to increase.

Pehkonen (1999) provides an empirical evaluation for the factors in the Finnish regional unemployment rates by applying cross-sectional data from 1991 that covers thirteen labour districts. The study does not include a consideration of the industry structure nor the elaboration of reorganization of regional labour markets.

The models based on the ideas of the so-called new economic geography stress these effects (see, for example, Fujita et al., 1999).