Michael Neugart

The Eurace@Unibi Model: An Agent-Based Macroeconomic Model for Economic Policy Analysis

This document provides a description of the modeling assumptions and economic features of the Eurace@Unibi model. Furthermore, the document shows typical patterns of the output generated by this model and compares it to empirically observable stylized facts. The Eurace@Unibi model provides a representation of a closed macroeconomic model with spatial structure. The main objective is to provide a micro-founded macroeconomic model that can be used as a unified framework for policy analysis in different economic policy areas and for the examination of generic macroeconomic research questions. In spite of this general agenda the model has been constructed with certain specific research questions in mind and therefore certain parts of the model, e.g. the mechanisms driving technological change, have been worked out in more detail than others. The purpose of this document is to give an overview over the model itself and its features rather than discussing how insights into particular economic issues can be obtained using the Eurace@Unibi model. The model has been designed as a framework for economic analysis in various domains of economics. A number of economic issues have been examined using (prior versions of) the model (see Dawid et al. (2008), Dawid et al. (2009), Dawid et al. (2011a), Dawid and Harting (2011), van der Hoog and Deissenberg (2011), Cincotti et al. (2010)) and recent extensions of the model have substantially extended its applicability in various economic policy domains, however results of such policy analyses will be reported elsewhere. Whereas the overall modeling approach, the different modeling choices and the economic rationale behind these choices is discussed in some detail in this document, no detailed description of the implementation is given. Such a detailed documentation is provided in the accompanying document Dawid et al. (2011b).

Skills, Innovation, and Growth: An Agent-Based Policy Analysis

Summary We develop an agent-based macroeconomic model featuring a distinct geographical dimension and heterogeneous workers with respect to skill types. The model, which will become part of a larger simulation platform for European policymaking (EURACE), allows us to conduct exante evaluations of a wide range of public policy measures and their interaction. In particular, we study the growth and labor market effects of various policy types that promote workers’ general skill levels. Using a calibrated model it is examined in how far effects differ if spending is uniformly spread over all regions in the economy or focused in one particular region.We find that the geographic distribution of policy measures significantly affects the effects of the policy even if total spending is kept constant. Focussing training efforts in one region is the worst policy outcome while spreading funds equally across regions generates a larger output in the long-run but not in the short-run.

Labor market integration policies and the convergence of regions: the role of skills and technology diffusion

We study the role of different labor market integration policies on economic performance and convergence of two distinct regions in an agent-based model. Production is characterized by a complementarity between the quality of the capital stock and the specific skills of workers using the capital stock. Hence, productivity changes in a region are influenced both by the investment of local firms in high quality capital goods and by the evolution of the specific skill distribution of workers employed in the region. We show that various labor market integration policies yield, via differing regional worker flows, to distinct regional distributions of specific skills. Through this mechanism, relative regional prices are affected, determining the shares that the regions can capture from overall consumption good demand. There occurs a trade-off between aggregate output and convergence of regions with closed labor markets resulting in relatively high convergence but low output, and more integrated labor markets yielding higher output but lower convergence. Furthermore, results differ substantially in several respects as distinct labor market opening policies are applied.

Endogenous Matching Functions: An Agent-Based Computational Approach

The matching function has become a popular tool in labor economics. It relates job creation (a flow variable) to two stock variables: vacancies and job searchers. In most studies the matching function is considered to be exogenous and assumed to have certain properties. The present study, instead, looks at the properties of an endogenous matching function. For this purpose we have programmed an agent-based computational labor market model with endogenous job creation and endogenous job search behavior. Our~simulations suggest that the endogenous matching technology is subject to decreasing returns to scale. The Beveridge curve reveals substitutability of job searchers and vacancies for a small range of inputs, but is flat for relatively high numbers of job searchers and vertical for relatively high numbers of vacancies. Moreover, the matching technology changes with labor market policies. This raises concerns about the validity of labor market policy evaluations conducted with flow models of the labor market that employ exogenous matching functions.

Complicated dynamics in a flow model of the labor market

Abstract We develop a worker flow model with a nonlinear and endogenous outflow rate from unemployment. Inconsistent claims on the output lead to changing inflation rates which feedback on job offers through the real money supply. Via simulations one can show that the nonlinear outflow rate causes asymmetric adjustment of unemployment to the ‘equilibrium rate of unemployment’. In addition, and depending on the parameters, the ‘equilibrium rate of unemployment’ may also become locally unstable. Then, there is a downward sloping Phillips curve but no trade-off between unemployment and inflation in the short run, as there is none in the long run.

Referral hiring, endogenous social networks, and inequality: an agent-based analysis

The importance of referral hiring, which is workers finding employment via social contacts, is nowadays an empirically well documented fact. It also has been shown that social networks for finding jobs can create stratification. These analyses are, by and large, based on exogenous network structures. We go beyond the existing work by building an agent-based model of the labor market in which the social network of potential referees is endogenous. Workers invest some of their endowments into building up and fostering their social networks as an insurance device against future job losses. We look into the manner in which social networks and inequality respond to increased uncertainty in the labor market. We find that larger variability in firms’ labor demand reduces workers’ efforts put into social networks, leading to lower inequality.

How German Labor Courts Decide: An Econometric Case Study

Abstract Courts are an important element in the institutional framework of labor markets, often determining the degree of employment protection. German labor courts provide a vivid example in this regard. However, we know relatively little about court behavior. A unique dataset on German labor court verdicts reveals that social and other criteria like employee characteristics, the type of job, local labor market conditions and court composition influence court decisions. At least as striking is that workers’ chances to win depend on where and when their cases are filed. This generates considerable ex ante uncertainty about outcomes.

Were the Hartz Reforms Responsible for the Improved Performance of the German Labour market

From 2005 to 2011 employment rose and unemployment rates declined considerably in Germany. This favourable development followed the labour market reforms initiated in 2003, and there has been a tendency to attribute the improved labour market performance to those reforms. Causal micro-evaluations of the various measures, however, show hardly any effects on variables that can be related to employment. Rather, it seems that employment increased in response to a process of wage moderation that had already begun in the 1990s. It is possible that this moderation was itself partially a product of the reforms, but this needs further investigation.

A Heterogeneous Agent Macroeconomic Model for Policy Evaluation: Improving Transparency and Reproducibility

This paper provides a detailed description of the Eurace@Unibi model, which has been developed as a versatile tool for economic policy analysis. The model explicitly incorporates the decentralized interaction of heterogeneous agents across different sectors and regions. The modeling of individual behavior is based on heuristics with empirical microfoundations. Although Eurace@Unibi has been applied successfully to different policy domains, the complexity of the structure of the model, which is similar to other agent-based macroeconomic models, has given rise to concerns about the reproducibility and robustness of the obtained insights. This paper addresses these concerns by describing the exact details of all decision rules, interaction protocols and balance sheets used in the model. Furthermore, we discuss the use of a virtual appliance as a tool allowing third parties to reproduce and verify the simulation results. The paper provides a systematic and extensive sensitivity analysis of the simulation output with respect to a set of key parameters. Particular emphasis is put on the question which parameter constellations give rise to strong economic fluctuations and high frequencies of sudden downturns in economic activity.

Spatial Labor Market Frictions and Economic Convergence: Policy Implications from aHeterogeneous Agent Model

This paper studies the effectiveness of different types of cohesion policies with respect to convergence of regions. A two-region agentbased macroeconomic model is used to analyze short-, medium- and long-term effects of policies improving human capital and fostering adoption of technologies in lagging regions. With fully integrated labor markets the human capital policy positively affects the economically stronger region but reduces production in the targeted weaker region. Subsidies for high technology investment in the weaker region have a positive local output effect and a negative effect on the neighboring region, thereby fostering convergence. When labor markets are not integrated both policies support convergence.