Luciano Mauro

A Poverty Trap of Crime and Unemployment

We present an overlapping generation growth model with an imperfect labor market where the links among crime, growth and unemployment are jointly considered, both in an endogenous and exogenous set-up. We test the major implications of our theory and verify the two model specifications through the Italian regional data, using the Pooled Mean Group estimator proposed by Pesaran, Shin and Smith (1999). The empirical results are in favor of the exogenous version of the model and suggest that crime and unemployment have long-run income level effects.

Long run growth and investment in education: Does unemployment matter?

Abstract In this paper we propose a model of endogenous growth with inefficiencies in the production of human capital caused by unemployment. The rationale underlying this assumption can be found in the observation that educated youngsters need to acquire firm-specific knowledge by working activities for schooling human capital to become productive. The model implies a negative long run relationship between growth and equilibrium unemployment. Data on a panel of 19 OECD countries covering the period 1960–1990 support our model predictions. Unemployment significantly lowers the output growth. In addition, despite previous results in the literature, once controlling for unemployment also the traditional measures of human capital accumulation turns out to be significant and to positively affect the long run output growth.

TheConvergence of the Italian Regions and Unemployment: Theory and Evidence

We explore the links between the halt of the convergence process of Italian regions at the beginning of the 1970s and the increase in regional unemployment dispersion. We consider a neoclassical exogenous growth model with an imperfect labor market and show that during the transitional dynamics the imperfections of the labor market negatively influence the output growth rate. In particular, the model implies that centralized bargaining is likely to set a national minimum wage that is too high with respect to the labor productivity of the less developed regions, resulting in a negative impact on their per capita output growth. We test the implications of the model on a regional panel data set using the GMM framework. Both our market distortion measure and the unemployment rate are found to significantly lower the growth rate of per capita output.

Imperfect labor market and convergence: theory and evidence for some OECD countries

Abstract In this paper, we show the existence of a negative relationship between long run growth and labor market imperfections both theoretically and empirically. We consider a “monopolistic union” imperfect labor market in a neoclassical growth framework and show that labor market rigidity, captured by the mark-up over the reservation wage, does lower the growth rate along the transitional path. For policy purposes, this result implies that removing labor market imperfections in Europe is important not only for reducing unemployment but also for fostering output growth. In this respect, the traditional evaluation of these policies has greatly been underestimated for their beneficial effects on output growth. We verify empirically the convergence relationship implied by the model on a panel of 18 OECD countries using both traditional cross-countries growth regression and the system GMM estimator proposed by Arellano and Bover (1995) and Blundell and Bond (1998). The data support the basic implications of our model. In particular, the standard proxies for mark-up, the unemployment replacement ratio and union density, result to affect the long run growth rate negatively. We also analyze the relationship between growth and an alternative mark-up proxy based on Bean’s (1994a) insight: the ratio of per worker wage on per capita consumption. A negative and significant relationship between output growth rate and this mark-up proxy is found.

Decentralization, Social Capital and Regional Convergence

By studying the interaction between social capital and decentralization, we show that political decentralization can be a source of divergence across heterogeneous regions. In particular, we claim that since the local endowments of social capital display their effect on the economy mainly through the functioning of local institutions, decentralization enhances (hampers) growth wherever social capital is high (low). We define our hypothesis within a growth model with public capital, and use the North-South divide in Italy to assess the quantitative plausibility of our model. A calibration exercise shows that it accounts for the major swings in the Italian regional divide since 1861.