This paper investigates the drivers of growth and prosperity in a group of eleven European countries -- Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, and Slovakia (the EU11). Since the EU11 began the transformation process, this group of emerging countries has made impressive strides as developing market economies and is anchoring development in European Union institutions. There are reasons to believe that the convergence of EU11 income per capita to Western European levels will continue, but will proceed more slowly. The paper concludes that trade and financial integration have sped along at a spectacular pace in the EU11 in the recent past, although trade in modern services and the integration of government bond and equity markets are somewhat behind. As in the rest of Europe, demographic developments will pose huge challenges for the sustainability of public finance in the EU11 economies. In the next several decades, the EU11 labor force is expected to contract more than labor forces in the rest of the European Union, making it even more urgent that countries in the region reform pension systems, change migration policy, and find incentives to attract talent to the region. Closing the gap with the rest of the European Union in educational attainment levels and improving education quality might significantly soften the constraints imposed by the demographic threats and produce sizable returns in terms of additional income convergence.

This paper considers the most important aspects of model uncertainty for spatial regression models, namely the appropriate spatial weight matrix to be employed and the appropriate explanatory vari- ables. We focus on the spatial Durbin model (SDM) specification in this study that nests most models used in the regional growth literature, and develop a simple Bayesian model averaging approach that provides a unified and formal treatment of these aspects of model uncertainty for SDM growth models. The approach expands on the work by LeSage and Fischer (2008) by reducing the computational costs through the use of Bayesian information criterion model weights and a matrix exponential specification of the SDM model. The spatial Durbin matrix exponential model has theoretical and computational advantages over the spatial autoregressive specification due to the ease of inversion, differentiation and integration of the matrix expo- nential. In particular, the matrix exponential has a simple matrix determinant which vanishes for the case of a spatial weight matrix with a trace of zero (LeSage and Pace 2007). This allows for a larger domain of spatial growth regression models to be analysed with this approach, including models based on different classes of spatial weight matrices. The working of the approach is illustrated for the case of 32 potential determinants and three classes of spatial weight matrices (contiguity-based, k-nearest neighbor and distance-based spatial weight matrices), using a dataset of income per capita growth for 273 European regions. (authors' abstract)

<p>This thesis consists of four self-contained essays in economics. <i>Tournaments and unfair treatment</i>. This paper introduces the negative feelings associated with the perception of being unfairly treated into a tournament model and examines the impact of these perceptions on workers’ efforts and their willingness to work overtime. The effect of unfair treatment on workers’ behavior is ambiguous in the model in that two countervailing effects arise: a negative impulsive effect and a positive strategic effect. The impulsive effect implies that workers react to the perception of being unfairly treated by reducing their level of effort. The strategic effect implies that workers raise this level in order to improve their career opportunities and thereby avoid feeling even more unfairly treated in the future. An empirical test of the model using survey data from a Swedish municipal utility shows that the overall effect is negative. This suggests that employers should consider the negative impulsive effect of unfair treatment on effort and overtime in designing contracts and determining on promotions.<i> </i></p><p><i>Late careers in Sweden between 1970 and 2000</i>. In this essay Swedish workers’ late careers between 1970 and 2000 are studied. The aim is to examine older workers’ career patterns and whether they have changed during this period. For example, is there a difference in career mobility or labor market exiting between cohorts? What affects the late career, and does this differ between cohorts? The analysis shows that between 1970 and 2000 the late careers of Swedish workers comprised of few job changes and consisted more of “trying to keep the job you had in your mid-fifties” than of climbing up the promotion ladder. There are no cohort differences in this pattern. Also a large fraction of the older workers exited the labor market before the normal retirement age of 65. During the 1970s and first part of the 1980s, 56 percent of the older workers made an early exit and the average drop-out age was 63. During the late 1980s and the 1990s the share of old workers who made an early exit had risen to 76 percent and the average drop-out age had dropped to 61.5. Different factors have affected the probabilities of an early exit between 1970 and 2000. For example, skills did affect the risk of exiting the labor market during the 1970s and up to the mid-1980s, but not in the late 1980s or the 1990s. During the first period old workers in the lowest occupations or with the lowest level of education were more likely to exit the labor market than more highly skilled workers. In the second period old workers at all levels of skill had the same probability of leaving the labor market.<i> </i></p><p><i>The growth and survival of establishments: does gender segregation matter?</i> We empirically examine the employment dynamics that arise in Becker’s (1957) model of labor market discrimination. According to the model, firms that employ a large fraction of women will be relatively more profitable due to lower wage costs, and thus enjoy a greater probability of surviving and growing by underselling other firms in the competitive product market. In order to test these implications, we use a unique Swedish matched employer-employee data set. We find that female-dominated establishments do not enjoy any greater probability of surviving and do not grow faster than other establishments. Additionally, we find that integrated establishments, in terms of gender, age and education levels, are more successful than other establishments. Thus, attempts by legislators to integrate firms along all dimensions of diversity may have positive effects on the growth and survival of firms. </p><p><i>Risk and overconfidence – Gender differences in financial decision-making as revealed in the TV game-show Jeopardy.</i> We have used unique data from the Swedish version of the TV-show <i>Jeopardy</i> to uncover gender differences in financial decision-making by looking at the contestants’ final wagering strategies. After ruling out empirical best-responses, which do appear in Jeopardy in the US, a simple model is derived to show that risk preferences, the subjective and objective probabilities of answering correctly (individual and group competence), determine wagering strategies. The empirical model shows that, on average, women adopt more conservative and diversified strategies, while men’s strategies aim for the greatest gains. Further, women’s strategies are more responsive to the competence measures, which suggests that they are less overconfident. Together these traits make women more successful players. These results are in line with earlier findings on gender and financial trading.</p>

This thesis consists of four self-contained essays in economics. Tournaments and unfair treatment. This paper introduces the negative feelings associated with the perception of being unfairly treated into a tournament model and examines the impact of these perceptions on workers’ efforts and their willingness to work overtime. The effect of unfair treatment on workers’ behavior is ambiguous in the model in that two countervailing effects arise: a negative impulsive effect and a positive strategic effect. The impulsive effect implies that workers react to the perception of being unfairly treated by reducing their level of effort. The strategic effect implies that workers raise this level in order to improve their career opportunities and thereby avoid feeling even more unfairly treated in the future. An empirical test of the model using survey data from a Swedish municipal utility shows that the overall effect is negative. This suggests that employers should consider the negative impulsive effect of unfair treatment on effort and overtime in designing contracts and determining on promotions. Late careers in Sweden between 1970 and 2000. In this essay Swedish workers’ late careers between 1970 and 2000 are studied. The aim is to examine older workers’ career patterns and whether they have changed during this period. For example, is there a difference in career mobility or labor market exiting between cohorts? What affects the late career, and does this differ between cohorts? The analysis shows that between 1970 and 2000 the late careers of Swedish workers comprised of few job changes and consisted more of “trying to keep the job you had in your mid-fifties” than of climbing up the promotion ladder. There are no cohort differences in this pattern. Also a large fraction of the older workers exited the labor market before the normal retirement age of 65. During the 1970s and first part of the 1980s, 56 percent of the older workers made an early exit and the average drop-out age was 63. During the late 1980s and the 1990s the share of old workers who made an early exit had risen to 76 percent and the average drop-out age had dropped to 61.5. Different factors have affected the probabilities of an early exit between 1970 and 2000. For example, skills did affect the risk of exiting the labor market during the 1970s and up to the mid-1980s, but not in the late 1980s or the 1990s. During the first period old workers in the lowest occupations or with the lowest level of education were more likely to exit the labor market than more highly skilled workers. In the second period old workers at all levels of skill had the same probability of leaving the labor market. The growth and survival of establishments: does gender segregation matter? We empirically examine the employment dynamics that arise in Becker’s (1957) model of labor market discrimination. According to the model, firms that employ a large fraction of women will be relatively more profitable due to lower wage costs, and thus enjoy a greater probability of surviving and growing by underselling other firms in the competitive product market. In order to test these implications, we use a unique Swedish matched employer-employee data set. We find that female-dominated establishments do not enjoy any greater probability of surviving and do not grow faster than other establishments. Additionally, we find that integrated establishments, in terms of gender, age and education levels, are more successful than other establishments. Thus, attempts by legislators to integrate firms along all dimensions of diversity may have positive effects on the growth and survival of firms. Risk and overconfidence – Gender differences in financial decision-making as revealed in the TV game-show Jeopardy. We have used unique data from the Swedish version of the TV-show Jeopardy to uncover gender differences in financial decision-making by looking at the contestants’ final wagering strategies. After ruling out empirical best-responses, which do appear in Jeopardy in the US, a simple model is derived to show that risk preferences, the subjective and objective probabilities of answering correctly (individual and group competence), determine wagering strategies. The empirical model shows that, on average, women adopt more conservative and diversified strategies, while men’s strategies aim for the greatest gains. Further, women’s strategies are more responsive to the competence measures, which suggests that they are less overconfident. Together these traits make women more successful players. These results are in line with earlier findings on gender and financial trading.

The focus here is on the log-normal version of the spatial interaction model. In this context, we consider spatial econometric specifications that can be used to accommodate two types of dependence scenarios, one involving endogenous interaction and the other exogenous interaction. These model specifications replace the conventional assumption of independence between origin-destination-flows with formal approaches that allow for two different types of spatial dependence in flow magnitudes. Endogenous interaction reflects situations where there is reaction to feedback regarding flow magnitudes from regions neighboring origin and destination regions. This type of interaction can be modeled using specifications proposed by LeSage and Pace (2008) who use spatial lags of the dependent variable to quantify the magnitude and extent of feedback effects, hence the term endogenous interaction. Exogenous interaction represents a situation where spillover arise from nearby (or perhaps even distant) regions, and these need to be taken into account when modeling observed variation in flows across the network of regions. In contrast to endogenous interaction, these contextual effects do not generate reaction to the spillovers, leading to a model specification that can be interpreted without considering changes in the long-run equilibrium state of the system of flows. We discuss issues pertaining to interpretation of estimates from these two types of model specification, and provide an empirical illustration. (authors' abstract)

In this paper, we study the employment of workers from Central, Eastern and Southeastern European (CESEE) EU Member States in Austria after the Eastern enlargement of the European Union. To prevent a sudden rush of immigrants into the labor market, Austria opted for a Transition period during which immigration remained restricted. We will show that these restrictions had the anticipated effect; while the stock of workers from the new CESEE Member States increased slowly in Austria during the transition period, the trend became markedly steeper after the introduction of free labor market access. Between 2003 and 2016, the stock of workers from CESEE EU Member States in Austria increased fourfold by about 185,000 individuals. The largest immigrant groups are from Hungary, Romania and Poland. A large share of migrant workers are employed in seasonal industries and in border regions closest to their home countries.

This study suggests a two-step approach to identifying and interpreting regional convergence clubs in Europe. The first step involves identifying the number and composition of clubs using a space-time panel data model for annual income growth rates in conjunction with Bayesian model comparison methods. A second step uses a Bayesian space-time panel data model to assess how changes in the initial endowments of variables (that explain growth) impact regional income levels over time. These dynamic trajectories of changes in regional income levels over time allow us to draw inferences regarding the timing and magnitude of regional income responses to changes in the initial conditions for the clubs that have been identified in the first step. This is in contrast to conventional practice that involves setting the number of clubs ex ante, selecting the composition of the potential convergence clubs according to some a priori criterion (such as initial per capita income thresholds for example), and using cross-sectional growth regressions for estimation and interpretation purposes. (authors' abstract)

This paper concentrates on the central link between productivity and knowledge capital, and shifts attention from firms and industries to regions. The objective is to measure knowledge elasticity effects within a regional Cobb- Douglas production function framework, with an emphasis on knowledge spillovers. The analysis uses a panel of 203 European regions to estimate the effects over the period 1997-2002. The dependent variable is total factor productivity (TFP). We use a region-level relative TFP index as an approximation to the true TFP measure. This index describes how efficiently each region transforms physical capital and labour into outputs. The explanatory variables are internal and out-of-region stocks of knowledge, the latter capturing the contribution of interregional knowledge spillovers. We use patents to measure knowledge capital. Patent stocks are constructed such that patents applied at the European Patent Office in one year add to the stock in the following and then depreciate throughout the patents effective life according to a rate of knowledge obsolescence. A random effects panel data spatial error model is advocated and implemented for analyzing the productivity effects. The findings provide a fairly remarkable confirmation of the role of knowledge capital contributing to productivity differences among regions, and adding an important dimension to the discussion, showing that knowledge spillover effects increase with geographic proximity. (authors' abstract)

Since 1975, the extent of catching-up has been very different across Southern regions. Starting from the common arguments of growth theory, the paper wishes to show whether differences in regional income and growth can be attributed to different endowment in human capital, differences in private or public investment level, to structural imbalances, and labour force participation. The investigated panel consists of regional time series for the period 1975 to 1994 and includes NUTS II level regions of Greece, Spain, and the Italian South. Estimation of the impact of the variables on regional income is effected in a dynamic panel data model applying a GMM estimation procedure. The results indicate that the income level of Southern EU regions is largely determined by employment/educational levels and past public investment, while the impact of private investment is not significant. One may follow that EU regional policies should predominately focus on the human factor. Assistance to member countries to upgrade public infrastructures may be continued, but private investment incentives should be curbed. (author's abstract) / Series: Working Papers Series "Growth and Employment in Europe: Sustainability and Competitiveness"

The paper decomposes average income differentials between Roma and non-Roma in South East Europe into the component that can be explained by group differences in income-related characteristics (characteristics effect), and the component which is due to differing returns to these characteristics (coefficients or discrimination effect). The decomposition analysis is based on Blinder (1973) and Oaxaca (1973) and uses three weighting matrices, reflecting the different assumptions about income structures that would prevail in the absence of discrimination. Heckman (1979) estimators control for selectivity bias. Using microdata from the 2004 UNDP household survey on Roma minorities, the paper finds that a large share of the average income differential between Roma and non-Roma is explained by human capital differences. Nevertheless, significant labour market discrimination is found in Kosovo for all weight specifications and in Bulgaria and Serbia for two weight specifications. (author's abstract)