Figure 24 Regional relative unemployment rate in Poland in periods of 1999 and 2004 (annual averages). y = 0.8484X- 0 .1912 Ft2 = 0.5548 m c0> £ >» o ♦ ♦ Q . E a> c 3 2 m « CC
Relative unemployment rate 1999
The results for Europe and US from D ecressin and Fatas ( l 995) for 1968 to 1987 show for the 15 European states o f EU15 a slope o f regression line o f 1.09 (w ith a standard deviation o f 0.28) and the R 2 o f 0.23. For the US the slope o f the regression line is 0.67 and the R 2 equals 0.38. An im portant problem with the regression for 51 European states o f EU 15 m ay be that unem ploym ent is m easured differently across countries in Europe.
Also, the estim ation for the European regions was m ade over the period from 1968 to 1987. They found an R 2 o f 0.01 and a slope o f 0.20. H ow ever, this result w as alm ost entirely driven by the Spanish regional unem ploym ent data, and upon excluding them
the slope rose to 1.18 (w ith a standard error o f 0.26) and the R 2 equalled 0.32. T hey concluded that differences in relative unem ploym ent rates betw een regions seem to be m ore persistent in E urope than in the US.
5.3.5 Univariate response of unemployment to one standard deviation shock
T o assess the degree o f persistence o f national and regional variables, as in the case o f em ploym ent, I estim ate the univariate process follow ed by regional unem ploym ent rate in Spain and Poland. O ver the period 1976-2004 for Spain and 1999-2004 for Poland, allow ing for tw o lags (after having tested for the optim al num ber o f lags), I run the follow ing regression:
Equation 11 Ujt CC]( + Ci2llit[ + CCyiUjt_2j +
B lanchard and Katz (1992) and D ecressin and Fatas (1995) discovered that deviations o f regional relative unem ploym ent rates from their long-term m eans are not persistent both in European U nion and in the US. Also, the differences in relative unem ploym ent rates betw een regions seem to be m ore persistent in the European U nion than in the US, suggesting that regional em ploym ent shocks m ay not be absorbed by changes in regional unem ploym ent rates. Blanchard and Katz (1992) find that in the US the fast return to the long-term m eans happens because labour force participants m igrate into states which have benefited from a favourable dem and shock (see Table 18). In the case o f Spain and Poland, unem ploym ent is persistent in both countries, how ever stronger persistence resulting from shocks can be observed in Spain. This is a positive news for policy m akers in Poland providing some com fort that the unem ploym ent persistency is not as high as in Spain. W e can observe it in the unem ploym ent rate data. Spanish unem ploym ent fell to a one digit num ber only in 2005 after over 20
years o f double digit rate. Polish unem ploym ent rate has fell below 10% in 2007 after 15 years o f double digit levels o f this indicator. In Spain the coefficient in lag 1 is 0.77 show ing a very strong persistence o f unem ploym ent, stabilising in lag 2 to the level o f 0.16. In the case o f Poland coefficients are low er than in Spain, 0.41 in lag 1 and -0.07 (see T able 17). U nlike in the US, in Poland and Spain interregional m igration is very low. R~ is very sim ilar in both countries, in Spain 0.992298 and in Poland 0.995815. T his indicates that shocks are largely com m on to all regions. In D ecressin and Fatas (1995) the coefficients w ere higher than in the case o f Poland and Spain, am ounting to 0.98 for EU and 0.88 for US in lag 1 (see T able 18). Figure 25 presents the above results for Poland and Spain in the form o f univariate response o f unem ploym ent rate to one standard deviation shock, while Figure 26 show s the results o f D ecressin and Fatas (1995) for EU 15 regions and US states.
Table 17 Regional relative unemployment rate, pooled sample18
“ it “ i t - \ “ i t - 2
Spain (17 regions) 0.773038 0.157780
(0.023468) (0.023578)
Poland (16 regions) 0.410653 -0.076479
(0.062331) (0.060799)
Table 18 Regional relative unemployment rate. Results for EU for the period of 1966-1987 and for US 1970-1990 by Decressin and Fatas (1995)_________________________________________
“ n “ i t-1 “ i t - 2
EEC (51 regions) 0.9787 -0.4858
(0.0337) (0.0331)
US (51 regions) 0.8770 -0.1630
(0.0322) (0.0320)
The sizes o f the shocks are fairly sim ilar, 0.72 percentage points in Europe and 0.84 in the US, but have less persistent effects in European Union than in the US. Sim ilarly in
Spain the shock am ounts to 6.7 percentage points and in Poland to 5.8 percentage points. This substantial difference is due to the fact that the European figure was estim ated on all the E uropean countries, including those w ith very low unem ploym ent. D ecressin and Fatas (1995) m ade some separate estim ations for particular countries. T he result o f the estim ation for Italy gave the initial shock as three tim es higher than for the whole Europe. As can be seen from Figure 25, in Poland the effect o f the shock is lost m uch faster than in Spain. In period 5 the effect o f the shock has disappeared com pletely w hile in Spain 70% o f the initial effect is still left and it decreases gradually.
Figure 25 Univariate response of unemployment rate to one standard deviation shock. Pooled sample for Poland and Spain
0 . 0 8 --- 0.07 -> 0.06 0.05 0.04 - 0.03 1 0.02 i _0Q1 j 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Figure 26 Univariate response of unemployment rate to one standard deviation shock. Pooled sample for US and EU according to Decressin and Fatas (1995)
0.01 T 0.008 0.006 -- 0.004 - - 0.002 - - -0.002 -0.004 j —♦— U S ELj]
5.3.6 Univariate response of participation rate to one standard deviation shock
In order to investigate the response o f labour force participation to shocks, allow ing for tw o lags I run: