No. 3/2003
WAGE FORMATION, REGIONAL MIGRATION AND LOCAL LABOUR MARKET TIGHTNESS
Fredrik Carlsen
Kåre Johansen
Knut Røed
Abstract:
Economic theory predicts that local labour market tightness affects local
wage setting as well as individuals' migration decisions. But how should
we measure local labour market tightness? In this paper we show that the
common practice of using the local rate of unemployment as the tightness
indicator may be misplaced. Instead, we propose a human capital adjusted
outflow rate from unemployment that can be computed on the basis of micro
register data. This outflow rate performs better than traditional measures
of regional labour market conditions in panel data analyses of regional
wages and interregional migration.
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