Original scientific paper

Labour Cost Convergence in the EU: Spatial Econometrics Approach

Sonja Šlander
Marko Ogorevc

Abstract

This paper investigates spatial dispersion and the process of convergence of labour costs across NUTS2 EU regions in the period 1996-2006. While spatial relations have long been overlooked in the standard empirical work and most studies still treat regions as isolated in space, recent evidence shows that regional data cannot be regarded as independently generated, due to the presence of spatial dependencies among the neighbouring regions. As a consequence, the standard estimation procedures, employed in many empirical studies, can be invalid and lead to serious biases and inefficiencies in the estimates of the convergence rate. To deal with this issue, in this paper we use methods based on the concept of spatial dependence in order to augment the standard β-convergence measure. Our results confirm absolute convergence of wages within the EU, and reveal narrowing in the wage gap between high- and low- wage regions even after controlling for their different productivity growth rates. This is an important signal to firms seeking location for production and at the same time bad news for regions relying on labour costs as the main source of their competitiveness to attract new firms.

Keywords

convergence; labour market; European Union; spatial econometrics; regional competitiveness

Hrčak ID:

52666

URI

https://hrcak.srce.hr/52666

Publication date:

20.5.2010.

Article data in other languages: croatian

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