Final Activity Report Summary - ENLARRE (Labour Market Adjustment and the EU Enlargement)
This project has two goals. It first aims at studying the consequences of large reallocation shocks in the presence of specific skills in the labour market. The second part is an empirical application focused on the European enlargement process. While most economic analyses highlight the expected long term gains that are likely to emerge from trade liberalisation, this project studies the short and medium term labour market impact of the enlargement for different groups of the population, depending on the transferability of their skills.
Our findings clearly suggest that workers endowed with vocational skills are likely to suffer higher wage losses, longer unemployment spells and a higher probability of exiting the labour market towards early retirement than workers with general skills (or general education) during the adjustment period. We next argue that the lack of transferability of skills in a large fraction of the population is likely to have important consequences for the macroeconomy. To illustrate this claim, we build a simple theoretical framework in which young agents' careers are heavily determined by the type of initial education, and analyse the transition to a new steady-state after a sectorial demand shift. In this framework, we show that in the absence of mobility it can take as much as a generation for the economy to absorb a sectorial reallocation shock.
We conclude showing that our modelling structure is capable of capturing the recent experiences of two economies with very different institutional frameworks: Estonia and Poland. When the model is calibrated using data from these two countries, we show that the Polish labour market, endowed with a much larger population exhibiting specific skills, displays higher and more persistent unemployment in the aftermath of a reallocation shock. The recent experience in these two economies is consistent with this observation.
Our findings clearly suggest that workers endowed with vocational skills are likely to suffer higher wage losses, longer unemployment spells and a higher probability of exiting the labour market towards early retirement than workers with general skills (or general education) during the adjustment period. We next argue that the lack of transferability of skills in a large fraction of the population is likely to have important consequences for the macroeconomy. To illustrate this claim, we build a simple theoretical framework in which young agents' careers are heavily determined by the type of initial education, and analyse the transition to a new steady-state after a sectorial demand shift. In this framework, we show that in the absence of mobility it can take as much as a generation for the economy to absorb a sectorial reallocation shock.
We conclude showing that our modelling structure is capable of capturing the recent experiences of two economies with very different institutional frameworks: Estonia and Poland. When the model is calibrated using data from these two countries, we show that the Polish labour market, endowed with a much larger population exhibiting specific skills, displays higher and more persistent unemployment in the aftermath of a reallocation shock. The recent experience in these two economies is consistent with this observation.