APPENDIX: Schematic Summary of Belgium’s Geographical Organization
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)| false Dejemeppe, M.and B. Cockx, 1998, “ La Conception des Politiques en Faveur de l’Emploi: l’Importance d’un Diagnostic des Causes du Chômage Structurel,” in Wallonie et Bruxelles: Évolution et Perspectives, 13ème Congrès des Economistes Beiges de Langue Française, Commission 4: Portrait Socio-économique de la Belgique, Centre Interuniversitaire de Formation Permanente, Charleroi, pp. 177– 201.
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Docquier, F., and S. Laurent, 1996, “Les Salaires Wallons Sont-Ils Trop Élevés? Une Étude Économétrique des Différences de Salaires entre les Régions,” Tendance Économiques, October, pp. 52–64.
Docquier, F., S. Laurent and S. Perelman, 1999, “Capital Humain, Emploi et Revenus du Travail: Belgique, 1992,” Cahiers Économique de Bruxelles, 161, pp. 77–103.
Mauro, Paulo, and A. Spilimbergo, 1999, “How do the Skilled and the Unskilled Respond to Regional Shocks? The Case of Spain,” IMF Staff Papers, International Monetary Fund, Vol. 46, March, pp. 1–17.
The coefficients of variation refer to units of observation at the NUTS3 (nomenclature of statistical territorial units) level. For Belgium, these are within province-level units of observation, a definition close to “metropolitan areas.” The order of the countries in Figure 1 is virtually unchanged if aggregation at the province-level (NUTS2) were used.
The participation rate is the sum of employed and unemployed people (the labor force) divided by the working-age population. When referring to participation for Belgium, the regions, and the provinces, the working-age population is assumed to be between 15 and 75 years old, in line with Eurostat practice. However, for employment rates (the ratio of those employed to the working-age population), a working-age population of 15-64 years old is used, also in line with Eurostat practice (to match the definition used in European summits).
EU averages refer to unweighted averages.
Eurostat uses a traditional labor force survey-driven definition of unemployment: individuals without a job that are actively looking for one. Under this definition and using Eurostat data, the ratio between the Walloon and the Flemish unemployment rates was 1.84 in 1995 and 2.67 in 2000. Under the “broader” definition in CREW-IRES (1998) this ratio was 1.48 in 1995.
The first would occur if unemployment gradually eroded general job skills; the second if firms (correctly or not) used the length of unemployment as a signal regarding otherwise unobservable employability; and the third if those who remain unemployed longer are just poorer prospects (the better ones having already been hired).
This final formula results from, first, using the unemployment definition in (1) to generate
Labor force growth is the sum of the percent changes in working-age population and labor force participation rate. For Flanders this was 16.5 percent from 1983 to 2000, while for Wallonia and Brussels it was 12.1 percent and 3.7 percent.
Total employment growth in each region in Tables 2 and 3 may not match because the underlying data were obtained differently. In Table 2, total employment was derived from information for the unemployment rate and the level of unemployment, while sectoral employment data were obtained directly from Eurostat’s community labor force survey.
It may have been, however, that the initial industry mix resulted in a larger initial economic shock, which exposed labor-market weaknesses more in Wallonia than elsewhere.
These studies estimate wage equations for Belgium controlling for individuals’ observed characteristics, including region of residence. They found that the coefficient for the regional dummy variable is not significantly different from zero and, therefore, that observed differences in wages across regions are determined by the composition of their labor force. This result is quite remarkable because the studies mentioned here do not control for differences in regional business cycles since they are based on a cross-section of data with no time series variation. In that situation, the regional dummy included in the regression specification would be also capturing the relative business cycle position of each region. Given that unemployment rates in Flanders were much smaller than in Wallonia both in 1992 and in 1995, the years used in the estimation process, one would expect a negative premium for workers in Wallonia.
The series for regional unemployment was obtained by extrapolating Eurostat data backwards from 1983 with information in CREW-IRES (1998). Vacancies data from 1983 on were obtained from the web page of the Belgian Central Bank (BNB) and extrapolated backwards using information from CREW-IRES (1998). This exercise should be viewed with caution because of possible differences in definitions in these different sources of data. However, the regional graphs of the unemployment/vacancy relationship match charts in other research papers ending at the beginning of the 1990s.
Antonio Spilimbergo provided crucial help with the calculations in this section.
Many different specifications for the system of equations (4), (5) and (6) were tested. The use of time-dummies instead of defining each variable as a deviation to the national average barely changes the impulse-response charts. When higher-order lags for the regressors were used the results did not change much but labor force participation proved to be a bit more volatile than shown in Figure 23.
After an increase of 1 percent in the first year, employment in the second year of adjustment is only 0.52 percent above its pre-shock level.