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Acronym
FEELM
Proposal title (in
French)
Flexibilité et Efficience des marchés Européens du travaiL devant les chocs
Macroéconomiques négatifs. Une analyse systémique
Proposal title (in
English)
The Flexibility and Efficiency of European
Labour Markets in Accommodating Adverse
Macroeconomic Shocks.
A Systemic Analysis (FEELM)
Evaluation panel
SHS 1
Type of research
X Basic Research
 Industrial Research
 Experimental Development
International
cooperation
International cooperation with ANCS (Rumania)
Name and first name of the French coordinator: CALLENS STEPHANE
Coordinating
partner
Link with a project
of the Investment for
the Future
(“Investissements
d’avenir”)
programme
Identification of the organisation (laboratory, company…): LEM UMR 8179
CNRS
 Yes
X No
If yes, indicate the project:
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French and foreign partners involved in the project:
For the French and foreign partners, indicate in the following table the country, the organisation and the name of the leader, its role (coordin
ator or partner) and the requested funding.
Number
Organisation
France
LILLE ECONOMIE MANAGEMENT UMR 8179 CNRS,
Partner
Université d’Artois (réf : U.Lille 1)
2
1
Role in the project (coordinator or
partner)
Country
Rumania
ANR-GUI-AAP-06 – Doc Scientifique 2013
Requested funding to the ANR (euros)
Requested funding to the foreign age
130 000 €
Bucharest University of Economic
Coordination
Studies (ASE)
1
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French and foreign people involved in the project:
For the scientific and technical leaders of each partner and for each person whose involvement in the project exceeds 25% of his/her time for the entire project (that
is to say an average of 3 person months per project year), indicate in the following table their organisation, their main activities, and their specific skills:
Organisation
Last name
First name
Current position
LEM UMR 8179 CNRS
CALLENS
Stephane D.
Professor
LEM UMR 8179 CNRS
LEM UMR 8179 CNRS
LEM UMR 8179 CNRS
LEM UMR 8179 CNRS
TALAROWSKI
BOUGHATTAS
CHERFI
KHALLAF
David
Yosra
Sofiane
Nezha
Postdoc
Lecturer
Postdoc
Postdoc
ASE
BOBEICA
ASE
DOBRE
ASE
DUDIAN
ASE
BOJESTEANU
ASE
MOSORA
* only to be indicated for Social Sciences and Humanities
** to be indicated with respect to the total project duration
ANR-GUI-AAP-06 – Doc Scientifique 2013
Field of research*
Behavioural
economics; Disaster
economics.
Labor Economics
Labor Management
Management
Industrial Ec.
Involvement in the
project
(person.months)
**
Role and contribution to the project
4 lines maximum
15
Coordinator France
Analysis; Behavioral modelization
8
9
8
8
Models of labor market; analysis
Labor management and labor market analysis
Household Decision
Norms and Conventions
Gabriel
Lecturer
Macroeconomics
Coordinator
Macroeconomic modelling;
econometric analysis; estimation and
calibration of models
Mihaela-Hrisanta
Monica
Elena
Cosmin
Lecturer
Professor
Lecturer
Lecturer
Labor Economics
Macroeconomics
Monetary Policy
Labor Economics
Analysis of Labor market
Macroeconomic analysis
Econometric analysis
Panel data econometrics
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1.
2.
Project FEELM
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EXECUTIVE SUMMARY OF THE PROPOSAL .................................................... 5
CONTEXT, POSITION AND OBJECTIVES OF THE PROPOSAL .................................... 5
1.1.
Objectives, originality and novelty of the project ........................................................ 7
1.2.
State of the art ............................................................................................. 8
3.1
Scientific programme and project structure .............................................................18
Description by task .................................................................................................19
1.3.
Task schedule .............................................................................................27
2. DISSEMINATION AND EXPLOITATION OF RESULTS AND INTELLECTUAL PROPERTY ........ 30
3. CONSORTIUM DESCRIPTION ................................................................. 31
3.1.
partners description, relevance and complementarity ..................................................31
5.2
Qualification and contribution of each partner .........................................................32
4. SCIENTIFIC JUSTIFICATION OF REQUESTED RESOURCESERROR! BOOKMARK NOT DEFINED.
4.1.
Partner 1: ASE ..................................................Error! Bookmark not defined.
4.2.
Partner 2: LEM .................................................Error! Bookmark not defined.
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1. EXECUTIVE SUMMARY OF THE PROPOSAL
The main aim of the proposed Project is to analyse the efficiency of labour market in
acting as a mechanism of accommodating adverse macroeconomic shocks. The research focuses
on assessing the flexibility of the labour markets in the European Union (EU) especially during the
financial and economic crisis which started in 2008, and emphasise the interactions between labour
market and other important markets, such as the financial one or that of goods and services. The
Project delivers (i) a state of the art literature of methods and results on labour market flexibility, seen
as a mechanism of absorbing macroeconomic shocks, (ii) a modeling and quantitative framework
which provides a better understanding of the role labour market developments should have in
the design of macroeconomic policies, such as monetary or fiscal, and (iii) policy implications. By
explicitly including in the analysis intra-EU migration flows and exploring the role played by
institutions, the Project contributes also to formulating better policies meant to address the problem of
increasing divergence between European labour markets.
The main novelty and original contribution of the Project consists in adopting a systemic
approach, including explicit modeling and taking into account in the estimations of intra-EU
workforce migration. This approach will contribute to a better understanding of the way in which
labour markets in the EU have adjusted in the current period of financial and economic crisis, will
shed additional light on the heterogeneity identified in the reaction of the EA members during this
period and will provide more insights on were NMS stand on the road to monetary integration.
More precisely, concerning the modeling section, we intend to elaborate DSGE (Dynamic
Stochastic General Equilibrium) type models which will incorporate, besides traditional features such
as nominal and real rigidities, the flows of labour force from EU developing countries (e.g. Romania,
Bulgaria, Poland) to developed economies (e.g. France, Germany or even Spain). We will adopt the
mainstream approach, based on the representative rational agent, but we will also experiment
alternative models incorporating bounded rationality, trying to model the heterogeneity of agents,
as well as the interactions between them.
In the empirical part of the Project we will address issues such as: the dynamics of various
EA labour market indicators in the pre-crisis period; the adjustment of the EA and non-EA labour
markets during the crisis period, identification of the main structural developments. The main novelty
here will consist in constructing a new aggregate indicator of labour market flexibility based on
non-additive measures (Choquet integral) that allows combining in a non-linear fashion a set of
interacting and possible contradicting criteria. We estimate also the dynamics between labour market
phenomena and monetary and fiscal policies.
The policy implications section is particularly relevant, as it creates the link between the
real economy and our research. Due to the fact that labour market policies produce effects on time
horizons which are usually considerably larger than those of monetary and fiscal policies (this is
especially true if we consider policies intended to increase the quality of human capital), any decision
in this domain must be made only after a comprehensive analysis of the current situation and an
inventory of possible implications over the long-run. With this in mind, we will conduct in this part of
the Project a review of the reforms designed to increase the flexibility of labour market, awarding
special attention to the way these affected social inclusion. Based on this analysis and on a detailed list
of each measure’s effects, we will emphasize the lessons which have to be learned by developing EU
members from the developed ones in terms labour market flexibility enhancing policies.
2. CONTEXT, POSITION AND OBJECTIVES OF THE PROPOSAL
While some of the effects financial and economic crisis started in 2008 had on European
economies almost faded out, the level of economic activity measured by real Gross Domestic Product
(GDP) being in 2012:Q3 only slightly below that recorded in 2008:Q1, the impact of others is still
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present. It is especially the case of adverse shocks that affected labour market variables, such as
unemployment and employment rate, or youth unemployment rate, in a persistent manner. Between
2008:Q1 and 2012:Q3 the unemployment rate (in seasonally adjusted terms) increased by 3.7
percentage points (pp), to 10.5%, in the EU27, and by 4.2pp, reaching the current maximum value of
11.5%, in the EA151 countries. In the same time interval, youth (less than 25 years) unemployment
rate advanced both in EU 8pp, from 15% in 2008:Q1, to 23% in 2012:Q3. Meanwhile, in the United
States (U.S.) unemployment rate was growing less, by 3.1pp from 5% in 2008:Q1 to 8.1% in 2012:Q3.
Employment rate had a more muted response, declining by 1pp in EU27, and about 1.6pp in EA15.
Figure 2.1 Dynamics of EU27 and EA15 unemployment rates
(%, s.a.)
30.00
25.00
20.00
15.00
10.00
5.00
0.00
00:Q1
01:Q3
03:Q1
04:Q3
EU27 Total
Min EA15 Total
06:Q1
07:Q3
EA15 Total
Max EA15 Total
09:Q1
10:Q3
12:Q1
EA15 Total
Min EU27
Source: Eurostat.
These developments are suggestively illustrated in Figure 1.1, depicting developments in the
unemployment rate at the level of EU27, as well as at that of the EA15 countries.
Figure 2.2 Dispersion in unemployment rates
across EU27 and EA15 countries (standard deviation, %)
10.00
8.00
6.00
4.00
2.00
0.00
00:Q1
01:Q3
03:Q1
Std. dev. EU27
04:Q3
06:Q1
Std. dev. EA15
07:Q3
09:Q1
10:Q3
12:Q1
Std. dev. EU27 non EA15
Source: Eurostat, own calculations.
EA15 countries: Belgium, Spain, Ireland, Italy, Luxembourg, Netherlands, Germany,
Finland, France, Austria, Portugal, Greece, Slovenia, Cyprus and Malta.
1
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Figure 2.1 suggest also that averaging across EU27 or EA15 countries may hide a picture of
increasing heterogeneity in the patterns of European labour markets dynamics since the onset of the
crisis. The divergence in the way labour markets adjusted during the crisis is indicated by the increase
in the amplitude of unemployment rate, computed as the difference between the maximum and
minimum level of unemployment rate in the EU27 and EA15 groups of countries. The most striking
conclusion emerging from Figure 1.1 is that this divergence accentuated mainly in the Euro area
economies and is currently above that at the level of the EU27. As an additional argument in favour of
this idea, we should mention that in November 2012, the unemployment rate among young ranged
between 8.1% in Germany and 56.5% in Spain, and 57.6% in Greece.
Figure 2.2 confirms the increase in the heterogeneity of European labour markets in terms of
unemployment rate using as dispersion standard deviation, a measure that takes into account the entire
set of countries within a group. After 2008, the increase in the dispersion of unemployment rates in
EU27 was mainly due to a steep amplification of heterogeneity among EA15 countries.
In this context, several issues emerge as essential for the medium and long-run prospects of
the EA member states, as well as for the EA candidates. First, it is important to explain the persistence
in the effects financial and economic crisis had on the labour markets in the European countries.
Secondly, it is of equally importance to identify the factors behind increasing divergence and to assess
the role played in this by the common monetary policy. Thirdly, policymakers should be prepared with
appropriate measures and should act proactively is this episode will repeat in the future.
These issues haven’t remained unnoticed by European Commission (EC) and the European
Central Bank (ECB). EC (2012) warns that “divergence in the EU27 and especially between the
North and South of the Euro area has never been so significant. For the EU as a whole, mismatches
with higher unemployment rates but vacancies still available are increasing overall.” EC (2012)
signals also “the trend of increasing social polarisation in many Member States.” ECB (2012)
identifies among the factors explaining heterogenous adjustment patterns the cross-country
differences in exposure to the recession, and differences in wage bargaining institutions.
1.1.
OBJECTIVES, ORIGINALITY AND NOVELTY OF THE PROJECT
The main aim of the project is to develop a systemic framework for assessing the
flexibility and efficiency of the labour market in the European Union (EU), jointly analysing
importers as well as exporters of workforce, and capturing the links of the network described by
migration phenomena. The topic is extremely relevant and important, as labour market can act as a
shock absorber mechanism in times of economic turmoil, such as the current period, and is
particularly important when all other macroeconomic policies have exhausted their manoeuvre space.
Moreover, an efficient labour market exerts its role as an absorber of adverse shocks without
additional costs in terms of social exclusion of those individuals affected by the adjustments in
employment or wages. The issue is relevant both for EA member and candidate countries, since the
performance of labour markets is widely seen in economic theory as a key criterion in judging the
benefits vs. the costs of participating in a monetary union. An optimal degree of labour market
flexibility contributes not only to accommodating macroeconomic shocks, irrespective of whether
they are real of financial, but also to foster long run economic growth and enhance the overall
competitiveness of the economy.
Labour market flexibility is an important objective, irrespective of whether a country is
inside or outside of a currency union. It takes on an added importance when neither the nominal
exchange rate nor national interest rates can be adjustment mechanisms in the face of economic
shocks.
Taking into consideration the high degree of integration of the European labour market, it is
crucial to build a comprehensive and systemic framework in order to analyse the underlying features
of the labour market and whether it can mitigate the effects of adverse shocks. The system is designed
considering two main pillars: EA members, and new member states which haven’t adopted the
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common currency, as the flexibility of labour market becomes vital when other policies, such as the
exchange rate policy, become inefficient. Within these two pillars we will distinguish between
workforce importers and exporters. The aim of the project is three-fold, as follows:
- building a comprehensive set of systemic models able to assess the role of labour market
flexibility in accommodating shocks, enriched with the role played by migration phenomena. The
models will allow substantiating the interactions between labour market and other sectors of the
economy, such as goods, services and financial markets;
- empirical assessment of structural features of labour markets in European countries (such
as Beveridge curve and structural unemployment) and constructing a measure of labour market
flexibility by aggregating various criteria;
- evaluating implications of labour market policy measures and formulating policy advices.
Among the main risks associated to the Project’s objectives one pertain to the availability of
data related to intra-EU migration flows, as well as to the quality (methodology changes with
significant impact at least in the case of the NMS) of available employment data.
1.2.
STATE OF THE ART
A strand of literature, originated in the studies of Diamond (1982), Mortensen (1982) and
Pissarides (1985) and including Mortensen and Pissarides (1994), explain unemployment through a
search and matching model. The model, known as Diamond, Mortensen, Pissarides (DMP) model
considers the labour market in terms of an economic equilibrium where workers and employers
interact on purpose. The main hypothesis in the search and matching model is that jobs are
characterized by monopoly rents. As a result, the unemployment level is given by matching frictions
and the rents are shared through continuous bargaining between the firm and the worker. Using the
Nash solution, the wage rate is derived as a linear combination of the productivity of the match and the
worker’s returns from search and other non market activities. Due to the fact that the value of labour
product depends more on the stage of economic cycle than the earnings from non market activities,
salaries will depend less on the stage of economic cycle than employment.
However, Shimer (2005) and Hall (2005) argue that the previous model fails to replicate the
observed cyclical volatility of unemployment. Consequently, they consider that real wage rigidity is
needed to be added to the search and bargaining model, in order to improve its performance in terms
of mimic the observed dynamics of the labour market during the economic cycle.
Interactions between labour market phenomena and monetary and fiscal policies
The role played by the labour market in monetary and fiscal policy decisions represents a
vital issue both for EA members as well as for EA candidate countries. The conditions existing on the
labour market – indicators with maximum social impact – are essential for designing macroeconomic
policies, especially through the existing relations between unemployment and price stability, and
between social benefits and fiscal consolidation.
The importance of the labour market for the well-functioning of the entire economy lays in
its capacity of absorbing economic shocks by adjusting the number of workers, the number of working
hours, or the level of real and/or nominal wages. The concept of labour market flexibility is
connected with the flexibility of wages, which can be nominal, given by their capacity of reacting to
price changes and real, expressing their reaction to various shocks (unemployment, productivity etc.).
The economic literature (Scheremet, 2000; Hughes et al., 2000; Dellas and Tavlas, 2002) analyzes
how differences in the flexibility of labour market across regions and countries influence shock
absorption. A shock that initially has a symmetric effect in the Economic and Monetary Union (EMU)
will evolve in an asymmetric shock if a region adjusts more slowly, and the economic costs can be
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severe. From this point of view, studying the labour force flexibility is highly relevant for those
economies which are preparing to join the EMU.
An efficient labour market must be based not only on the flexibility of wages, but also on the
mobility of workers, geographic mobility included. The empirical studies have shown that the mobility
of workers is limited and that even the existence of a high unemployment rate in a certain region is not
a sufficiently strong incentive to increase migration to another region or to modify workers’
competencies (Jackmen and Savouri, 1999; Cameron and Muellbauer, 2001). In fact, labour market is
characterized by a high level of rigidity. Using the framework provided by the Dynamic Stochastic
General Equilibrium (DSGE) models, Pfister (2008) showed that, due to the rigidity of wages, labour
market is the main source of rigidity in the economy. This rigidity can largely explain the real effects
of monetary shocks.
An important source of labour market rigidity is represented by the wage setting
mechanisms, an extremely prolific area of research starting with the theory of bargaining between
labour unions and employers, with Dunlop (1944) as its precursor, and continuing with the modern
bargaining theory founded by Nash (1950, 1953). Nash showed that wage negotiations can be
explained by a sub-game equilibrium, assuming that each player on the labour market takes the best
decision in response to the choice of the other player. In terms of the relation between wages and
inflation a special role is played by trade unions. The unionization rate has a positive effect on
wages (Lewis, 1963), nominal wages becoming less sensitive to variations in unemployment in the
countries characterized by decentralized wage negotiations (Thomas, 2001). Aidt and Tzannatos
(2005) consider that centralized negotiations have a very fragile impact on macroeconomic variables,
and that coordinated negotiations favour the labour market flexibility and limit wages’ dispersion. In
case of a stable inflation, wage renegotiations should take place less often. Calmfors (2001) considers
that entering the Eurozone could be accompanied by an increase in the flexibility of nominal
wages, due to the impossibility of using the national monetary policy.
Figure 2.3 illustrates the factors determining labour market flexibility.
Figure 2.3 Determinants of Labour market flexibility
Source: HM Treasury, 2003, based on Soltwedel et al., 1999.
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The Project analyzes the main indicators that measure the flexibility and the rigidity of the
labour market, as well as its mobility, including the frictions that exist on this market, using the
relation between unemployment and vacancies rate, based on the estimation of a Beveridge Curve
tested by Blanchard and Diamond (1990).
One of the most recent characteristic of the contemporary labour markets that was identified
by the economic literature is represented by the flexicurity concept, a notion used for the first time in
the mid-90s by Hans Adriaansens, sociologist and member of the Scientific Committee on
Governmental Policy in Netherlands (and developed later on by Wilthagen and Tros, 2004; Tangian,
2005 a.o.).
The employer is particularly characterized by the need of flexibility, as he needs to be able
to ensure, at the level of its firm, an adequate flow of personnel, correlated with the technological
processes developed there, under the conditions of producing innovation as the main source of
competiveness. On the other side, the employer needs security, which means both keeping its job and
developing its competencies. The term flexicurity emerged from the combination of these two needs
and is based on the idea that these dimensions are not contradictory, but complementary. Tanglian
(2006) considers that this concept is based on the compensatory idea of deregulating the labour
market, with advantages in terms of employment and social security. Therefore, the main objective of
flexicurity is to achieve a compromise between employers and employees, and not to increase the
security. While employers aim at deregulating the labour market, employees want to maintain and
protect their rights.
Wilthagen and Tros (2004) have identified four elements for both flexibility and security,
which can be considered secondary dimensions: numerical flexibility (adapting the number of
employers); functional flexibility (between various tasks); working time flexibility and wage
flexibility on one hand and job security, employment security, income security and combined
security (the equilibrium between free time and working time, between profession and family etc.) on
the other hand.
EMCO (2009) developed a methodology that can be used to assess the degree of flexicurity
of a labour market. The methodology is based on three elements:
- Input indicator, referring to expenditure on labour market policies (LMP) measures per
person wanting to work: Access to flexitime, Public spending on human resources,
Expenditure on LMP measures per person wanting to work, Expenditure on
unemployment benefits per person wanting to work;
- Process indicator, referring to activation per person wanting to work: Employees in
permanent contracts or voluntary fixed-term or part time, Participation in lifelong
learning, Participants in regular activation per person wanting to work, Unemployment
benefit recipients per person wanting to work;
- Output indicator, referring to follow up of participants in regular activation measures/
training measures: Persons with upwards mobility or with the same employment security
as previous year, Persons with upwards mobility or the same employment status and pay
as previous year, Follow up of participants in regular activation measures/ training
measures, At-risk-of-poverty rate of unemployed.
The aggregation of criteria given by previous indicators is a complex process which cannot
consist in a simple weighting. To solve this problem, we propose an approach based on introducing a
non-additive integral operator of Choquet type, an operator widely used for decision making under
uncertainty. The flexibility of the manner in which the criteria are combined is insured through the use
of different types of Choquet integrals. Non-additive measures were introduced by Choquet (1954) in
a monograph which had a significant impact not only in mathematics but also in physics or social
sciences in problems regarding the potential theory. Non-additive measures are actually a
generalization of classic measures and are also known as capacities, monotone set functions or fuzzy
measures.
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The Choquet integral appears as a result of the intention to integrate with respect to a nonadditive measure and is completely characterized by monotonicity and comonotone additivity, other
features necessitating additional hypothesis imposed to the set of functions. The Choquet integral has
multiple applications in economic and psychological decision theory, in finances or artificial
intelligence. Starting with the pioneering work of Gilboa (1987) and Schmeidler (1989), in the last
years the number of researches which replace expected utility computed based on a probability with
the utility computed based on the Choquet integral has increased. The Choquet integral is used also for
the evaluation of derivatives on markets with frictions (transaction costs, bid-ask spreads) (Hamada
and Sherris, 2001), for risk modelling (Denuit et al., 2005) and for modelling of uncertainty (Wang et
al., 1997). There’s even a Gini index based on the Choquet integral, index which measures the
equality of income and wealth measurement (Denneberg and Leufer, 2004).
Schmeidler (1989) presents the conditions which must be fulfilled by the preference relation
in order to be represented by a Choquet integral. In case of multi-criteria analysis, the representation
theorem through a Choquet integral of the preference relation on a multidimensional criteria space is
the contribution of Modave and Grabisch (1998).
Currently, the macroeconomic policies are highlighting the problem of costs in terms of
employment generated by disinflation. Over the last years, the monetary policies were generally
successful in terms of disinflation, achieved mainly through inflation targeting strategies. The
existence of frictions on the labour market highlights the intensity of the tradeoff between stabilizing
prices and increasing employment that should be accepted by the central bank, as a designer of
monetary policy. The expression of this relation can be found in the Phillips curve which, in its
modern version, can include forward-looking elements, backward-looking elements or a hybrid
combination between these two. In modern macroeconomic models, as it is the one developed by Gali
and Gertler (1999), the shape of the Phillips curve is derived based on microeconomic fundamentals,
in a context where the representative consumer maximizes his utility, the producer maximizes his
profits, the prices display a Calvo (1983) type rigidity, and the competition between firms is
monopolistic. The Phillips curve reflects the relation between anticipated inflation and real marginal
cost. The advantage of such an approach based on microeconomic foundations lies in a direct link
between the structural, fundamental, parameters that define the behaviour of economic agents and the
coefficients of the relationship between unemployment and inflation, making them exempt from the
criticism of Lucas.
Another common problem for the approaches similar to the one previously described is the
one related to the sensitivity of the estimators to the variable selected as proxy for real marginal cost.
In order to reduce the effects of this problem, the Philips curve will be estimated, within this Project,
in a series of structural models where the real marginal cost is approximated using variables such as
output-gap, unit labor cost, capacity utilization rate or an indicator of the economic sentiment offered
by surveys of the European Commission (EC). Ciurila and Murarasu (2008) deals with this subject,
focusing on the Romanian economy.
Labour market conditions play a defining role in designing and implementing
macroeconomic policies. Currently, the monetary policy in most of the countries is based on the neoKeynesian paradigm that provides a theoretical framework for DSGE models of analysis and
forecasting. The neo-Keynesian theory highlights the existence of nominal rigidities, which make
economic fluctuations possible even if the economy is affected by monetary or demand shocks
(Clarida et al., 1999). With other words, the most important prices (for instance, the wages) in
economy are rigid on the short term, being fixed on the basis of a long-term contract, a fact triggering
the adjustment of real economic variables when the economy is affected by shocks.
Some relatively recent studies extend the neo-Keynesian models used for designing
macroeconomic policies, by including certain realistic hypotheses regarding the labour market
(Christoffel et al. 2006; Blanchard and Clarida, 2008; Swanson, 2009). Gertler et al. (2008) show that
DSGE models are indeed widely utilized because they explain the reality better when they take into
account wages’ rigidity and because, apart from the typical frictions of the labour market, they
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introduce Nash mechanisms, as in Gertler and Trigari (2006). This way, we obtain an evolution of the
unemployment rate which is consistent with the one that was empirically observed, a fact which
increases the relevance of monetary policy decisions that are taken on the basis of DSGE models.
However, some authors underline that in order to formulate optimal decisions we can still improve
DSGE models by introducing key parameters that characterize the labour force.
Campolmi (2007) builds a DSGE model with two countries sharing the same currency, and a
labour market characterized by matching frictions and wage rigidity, monopolistic competition and
adjustment cost on pricing. The author documents the negative empirical relation between volatilities
of de-trended real wages, marginal costs and inflation and replacement rates during the EMU period,
concluding that the volatility of real wages, marginal costs and inflation is inversely related to the
replacement rate.
Campolmi and Faia (2008) are the first to integrate labour markets frictions into a DSGE
currency union model. Focusing on two types of labour market rigidities (unemployment rigidities and
real wage rigidities), they study the link between inflation volatility differentials and different
unemployment insurance coverage. After showing how the transmission mechanism of monetary
policy works in the presence of asymmetries in the structure of labour markets, the authors conclude
that labour market rigidities have a deep impact on the adjustment mechanism of the currency
union to productivity and monetary policy shocks.
Woodford (2009), in an attempt to synthesize the common elements of different
macroeconomic schools, concludes that all researchers agree with the statement “macroeconomic
models should be general equilibrium models” as DSGE type models, based on imperfect competition.
Monacelli (2011) goes even further and extends the basic matching model by allowing firms
to issue debt under limited enforcement of financial contracts. In his model firms have an incentive to
borrow in order to affect wage bargaining and credit shocks can generate sizable employment
fluctuations. The author concludes that credit contraction persistence has long-lasting impact on the
labour market, a result which is close to dynamics observed in Figures 2.1 and 2.2.
An essential role in conceiving and implementing macroeconomic policies is played by the
natural rate of unemployment, as an expression of the medium and long-term evolution of the
labour market. According to the monetary or fiscal policies, the natural rate of unemployment
reflects the sustainable usage of labour resources, being defined as that rate of unemployment which
corresponds to a stable level of inflation, meaning the lack of pressures in increasing the prices or
wages. The concept of natural unemployment was introduced by the Nobel laureates Friedman (1968)
and Phelps (1968), being then promoted by Modigliani and Papademos (1975) under the name of NonAccelerating Inflation Rate of Unemployment (NAIRU). Taking into consideration that the fiscal and
monetary policy decisions must be compatible with the level of natural unemployment and that any
deviation from this rule has a negative impact on price stability or on the sustainability of
employment, obtaining an accurate estimation of NAIRU, characterized by a minimum degree of
uncertainty, becomes a necessary condition. Given this fact, the Project uses a NAIRU estimation
methodology that aggregates the results of a set of techniques and methods in a consensus type
measure, built in a fashion similar to Darvas and Vadas (2004). This involves combining the
estimators yielded by various methods by weighting the results of each method according to the
correlations and recursive alternatives obtained by successive re-estimations. To validate the relevance
of the consensus measure of natural unemployment rate, the results will be analyzed in comparison
with those obtained by using the consensus measures based on principal component analysis (PCA).
It is worth mentioning that the process of accurately estimating the level of natural
unemployment is extremely difficult, because any attempt to quantify it is affected by the existence of
two fundamental sources of uncertainty. While the first one stems from the fact that the natural rate
of unemployment is an unobservable variable, the second one is the consequence of the fact that
punctual estimations are calculated on the basis of a combination of stochastic variables. These are
either measured with error, or they can be described completely only by using unfeasible large statistic
data. As it is the case of other unobservable variables such as the output-gap, the methods used for
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NAIRU estimation fall in three categories: structural methods, statistical methods and reduced-form
methods.
Another extremely important characteristic of the labour market, although less analyzed by
the economists in the EA candidate countries so far, is related to the fact that after Euro adoption the
labour market will take over in macroeconomic adjustment of adverse shocks that affect the economy.
The British Government ordered the elaboration of five impact studies, each study corresponding to a
test that British economy must pass in order to join EA with minimum costs. One of these tests
concerns the flexibility of the labour market, considered a key condition in order to pass the rest of
the tests (HM Treasury, 2003). A sufficiently high degree of flexibility ensures that the shocks won’t
have permanent effects on the economy, and the high rates of economic growth and employment can
be sustainable in the long term.
According to the Theory of Optimum Currency Area (OCA), whose precursor is the
Nobel Laureate in Economics Robert Mundell, it is optimal for a country to adopt the currency of the
monetary union only if the benefits outweigh the costs of this decision. There is a very extensive
literature on optimum currency areas, which mainly focuses on the way in which a country can ensure
intern stability using the policies available after giving up monetary autonomy. The literature refers to
the ways of ensuring a macroeconomic equilibrium after an asymmetric shock, i.e. a shock that affects
one of the countries in the union, but not the rest of them. Friedman (1953) showed that, when prices
and wages are flexible, the transition to equilibrium after an adverse shock can be achieved without
the emergence of unemployment. Mundel (1961) considers that, from all the OCA criteria, the
mobility of production factors, capital and labour force can prevent unemployment and economic
contraction if a country faces an adverse shock.
More recent literature is based on the theories set forth by the two before-mentioned authors
and empirically investigates to what extent the labour market can take over and adjust adverse shocks
(see also, for instance, Babecky and Dybczak, 2008) for the European Union case.
Until today, there are no studies referring to wages flexibility and to the mobility of labour
force from this perspective in some EU member countries, such as Romania. This project aims to fill
this gap in the literature by analyzing the capacity of labour force to mitigate adverse shocks that
affect the economy. We are going to use a Structural Vector AutoRegressive (SVAR) model a la
Moore and Pentecost (2006), but adapted for the analysed economies, and we are going to assess the
extent and speed with which wages and labour force react to various adverse shocks.
A fixed exchange rate regime eliminates one degree of freedom in absorbing macroeconomic
shocks. Therefore, there is a necessity for higher labour market flexibility in countries which intend
to join the European and Monetary Union (EMU). There is a large amount of literature that analyse the
labour market in EU. A relevant example is represented by Babetskii (2006), who focused on a crosscountry analysis of labour markets in enlarged EU, in order to empirically assess the role of aggregate
wages as a correction mechanism for dealing with economic disturbances. Various studies suggest
that there is a need for higher labour market flexibility in the EMU context (Hallett, 2000; Obstfeld,
1997; Pissarides, 1997), of a currency board arrangement (Gulde et al., 2000), or of a less rigid
exchange rate peg such as the European Exchange Rate Mechanism II (ERM II) (Kopits, 1999).
Hyclak and Johnes (1992), Boeri et al. (1998) and Blanchflower (2001) argue that wage flexibility is a
key determinant of labour market flexibility. EC (2003) stresses the importance of wage flexibility,
concluding that wages as the price of labour have a determinant role to play in determining the overall
balance of supply and demand on the labour market.
At the same time, from the perspective of joining the Euro area and giving up the
independence of monetary policy, the capacity of the labour market to adjust shocks is enhanced by
the existence of flexicurity. On the other hand, in terms of nominal convergence criteria, flexicurity
involves also the risks of increasing budgetary efforts involved by social protection and,
implicitly, the failure to achieve budgetary deficit and public spending ratio targets, in other terms
fiscal consolidation. As suggested by Lvrec and Yemer (2003), the access of certain EU member states
to the Eurozone could be jeopardized by structural imbalances of the labour market, by not achieving
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the condition of flexibility and by missing the objectives of the Social Agenda due to union-employer
bargaining rigidities. Even more, there is the risk of missing the targets related to exchange rate and
inflation because of the fluctuation of aggregate demand caused by the instability of income and final
consumption of the population (Lewis, 2009). The Project will fundament the implications of the
modern concept of flexicurity on the sustainability of the macroeconomic equilibrium, before and
after the accession to the Eurozone.
Lafontaine and Sivadasan (2009) have examined the available data on a corporation
operating in 43 countries over a period of 4 years, the impact of labour market rigidity induced by
regulation on the allocation of resources within the firm and further on the economic growth. Their
conclusion is that the index of labour regulation is directly correlated with the gross misallocation of
labour, which means that increasing regulations negatively affect the reallocation of resources and
therefore also the increase of GDP.
Shimer (2009) conducted a study on the USA and Europe (France and Germany) for the
period 1970 to 2005 on the relationship between marginal rate of substitution (MRS) of consumption
for leisure and the marginal productivity of labour (MPL), named the labour wedge. The study
concludes that taxes change induces a change in the distance between MRS and MPL.
Implementing the concept of security is desirable for EA candidate countries. Flexibility it is
a defining condition of labour market flexibility and an essential condition for EMU membership,
while security is required to comply with the Europe 2020 objectives. EU member states should aim
at a smart, durable and inclusive economic growth, one of its objectives being to increase the level of
employment up to 75% for people aged between 20 and 64 years. In this context, Ciuca et al. (2009)
tested the implementation flexicurity conditions in Romania and put forward a Romanian model of
flexicurity. The model objectives are to increase employment and reduce long-term unemployment,
and to develop the security and reduce the labour market segmentation.
European Labour market developments during the crisis
While the crisis started around the same time in most of the EU regions, its manifestation
and depth proved to be very heterogeneous. Some countries (core Euro Area countries such as
Germany or Austria) have overcome the crisis more easily, while others (the main examples are
Greece, Spain or Portugal) have experienced increased inflationary and employment problems in the
period of economic downturn.
The performance of labour markets during the crisis depends on the following factors: state
of the economy at the beginning of the crisis, the structural characteristics of the economy and labour
market policies (Aiginger et al., 2011; ECB, 2012).
The economic performance of a country depends on the labour market response to the crisis,
being demonstrating by economic analysis that there is a direct correlation between economic
performance and labour market performance. Aiginger et al. (2011) conducted a research highlighting
the connection between output performance, at national level, analysed by several indicators such as
real GDP growth, current account balance and labour market performance, analysed by the
evolution of employment and unemployment, before and after the crisis. The authors classify countries
into four categories from this point of view: (i) countries where economic performance is linked to
labour market performance (Norway, Switzerland, France, the Netherlands, Belgium, Austria, and
Poland); (ii) countries with low economic performance and poor labour market performance (Ireland,
Iceland, Great Britain, Finland, Hungary, and Spain); (iii) countries with high economic performance,
but poor labour market performance (the United States and Portugal) and (iv) countries with low
economic performance, but high labour market performance (Germany, Italy, Slovakia, and the Czech
Republic). These results emphasize that high labour market performance achieved by some economies
after the crisis began depended on several factors, particularly on employment protection and on active
policies. Given that during crisis, amid increasing uncertainty, companies could significantly reduce
the number of employees, one should consider the long-term effects of these measures, which may
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mean loss of human capital, which could result in additional costs in adapting the company to the
structural changes in the long-term. Therefore, policies to stabilize employment, to seek
employment protection and adoption of active measures can help overcome the recession faster, with
lower social costs.
Research conducted by the Wage Dynamics Network (WDN) on data collected in a survey
among European firms in 2009 provided overwhelming evidence in favour of the existence of wages
rigidities in the Euro area (ECB, 2012). Wage bargaining institutions were identified by WDN as a
major source of rigidity. The main elements of the wage bargaining institutions refer to:
collectivisation, in terms of wage bargaining coverage; centralisation, in terms of dominant level of
bargaining; level of bargaining for adaptation to cyclical fluctuations; frequency of deviations from
central agreement/ possibility of deviation; coordination; minimum wages, in terms of percent of
employees paid at minimum wage; minimum wage being the base for other wage increases;
indexation, in terms of percent of employees whose wages are automatically adapted to inflation;
backward looking indexation and the extent competitiveness is taken into account in wage
negotiations. Labour markets across the Euro area members are characterised by high trade union
coverage rate, of over 75%. Also, from the perspective of the level(s) at which bargaining takes place,
in most EA members negotiations are conducted at multiple levels, but the sectoral level was found to
be dominant (ECB, 2012).
In France, in mid January 2013 unions and business associations have reached an agreement
on an ambitious labour market reform. The reform is aimed to increase the “flexicurity” and to reduce
the rigidities in the labour market, considered to be at the heart of France’s economic structural
weaknesses, in particular its growing lack of competitiveness.
Intra-EU labour force migration during the crisis
Using a structural model, calibrated for two regions (EU15 and NMS12), Budnik (2011)
examines how free labour movements between “poorer” and “wealthier” regions can affect the
reaction of the latter to a macroeconomic shock. The Budnik model shows how labour migration, in
particular after the EU enlargement between 2004 and 2007, affected the reaction of EA economies to
the crisis. More specifically, the study uses a model of the joint dynamics of migration and key macro
variables after an adverse macroeconomic shock and contrasts the theoretical results with the EU
Labour Force Survey (LFS) data on immigration movements to EA countries. Labour migration
between the EU15 and NMS12 is endogenous and occurs in response to differences in wages and
employment opportunities between the two regions.
Two cases are depicted: when the borders between the two regions are closed, and when
immigrants from the NMS12 initially account about 1.5% of the resident population of the EU15. In
both cases, a fall in productivity raises the marginal costs of production. Firms react by increasing
prices and cutting employment. As the situation in the labour market worsens, wages contract and,
combined with depressed employment, feed into lower household income. In addition to the negative
investment effects, this deepens the initial GDP reduction. Under the open-door immigration regime,
the EU15 immigration rate drops as the fall in labour demand encourages NMS12 workers to
terminate their stay abroad (or not to emigrate in the first instance). The lower supply of immigrant
workers reduces the productive capacity of the economy and employment and GDP falls below the
levels that would have been observed under the closed-borders regime.
In conclusion, both the employment and real wage levels of EU15 indigenous workers are
therefore actually higher than would be the case under the closed-borders regime.
Draghi (2013) highlights the fact that mobility across borders is crucial for the EA. In terms
of policy responses, Draghi (2013) argues that actions taken by the ECB acting to remove unfounded
doubts about the irreversibility of the Euro is not sufficient in order to restore stability and prosperity.
Individual governments should also adopt policies that ensure the full responsiveness of wages and
prices, facilitating the efficient use of our large potential resources, thus revitalising growth.
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Preliminary results
The main contributions to the state of the art brought by the members of the Romanian
research team are mainly circumscribed to empirical literature analysing vital themes for Romania or
for other New Member States in the context of European integration. The studies co-authored by
Bobeica and Bojesteanu aimed at filling the gap in the literature on Romania, but also at providing
results which can be extended to other EA candidate countries.
Altar et al. (2012) explores the mechanism by which fiscal policy affect long-term growth
within the framework of endogenous growth models. We calibrate a growth model to data for five
Eastern Europe economies (Bulgaria, Czech Republic, Hungary, Poland and Romania) and simulate
the path of the main macroeconomic variables, under several alternative fiscal regimes.
Bobeica (2012) addresses one of the major themes of economic theory and practice, namely
the formation and representation of expectations. Through the obtained results, the thesis makes
contributions in the field of monetary theory, but also in the practice of monetary policy. Simulations
carried out in connection with determining of rational expectations equilibrium (REE) and the
convergence of expectations formed through learning processes to the REE enhance the knowledge
related to the behaviour of rational expectations models, extending the results of some classic studies
in the area.
Bojesteanu and Bobeica (2011) analyses the role of monetary shocks in transmitting
macroeconomic fluctuations across countries within a two-country framework, with a special
emphasis on the case of Romania. We determine the magnitude of the effects of European monetary
fluctuations on the Romanian economy by employing a SVAR model identified using long-term
restrictions that comprises key Romanian macro-indicators and the variables considered suitable for
isolating the European monetary policy shocks. Our findings were important in establishing the degree
of vulnerability of the Romanian economy to external disturbances and the degree of fulfilment of the
prerequisites for becoming a full EMU member.
Altar et al. (2010) provides potential output and output gap estimates for the Romanian
economy in the period 1998-2008. The approach consists in combining the production function
structural method with several statistical de-trending methods. The contribution of our analysis to the
scarce literature dealing with the estimation of the cyclical position of the Romanian economy is
twofold. First, we identify the contribution of the production factors to the potential output growth.
Second, we aggregate the results obtained through filtering techniques in a consensus estimate,
ascribing to each method a weight inversely related to its revision stability. It is important to mention
that econometric techniques used in this model can be used also the estimate the natural level of other
macroeconomic variables, such as natural rate of unemployment.
Bobeica et al. (2008) is a contribution to the empirical literature which investigates the
extent to which OCA preconditions are satisfied by candidate euro area member states, focusing on the
newest EU Member States, namely Bulgaria and Romania. The analysis suggests that although there
are several features common to the two countries such as being the laggard of the EU, there should be
no tendency in treating them as a homogenous group. Bulgaria seems to be more correlated with the
euro area than Romania leading the way to monetary integration. The major reason that explains these
results is the difference in the monetary policies promoted in the two economies.
Members of the Romanian research collective were involved in the realisation of several
projects dealing with issues concerning labour market, competitiveness, macroeconomic policies,
identification and transmission of shocks. Gabriel Bobeica and Elena Bojesteanu were members in the
research projects
 2009-2011 “The Assessment of the Prospect of Euro Adoption by Romania and the
Other New Member States. An Interdisciplinary Approach Based on a Multi-Criteria
Analysis with Non-Additive Measures:” the project addressed Euro adoption, from the
perspective of Romania. In order to establish the relative position of Romania in the
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process of nominal and real convergence, the Project performed an ample study
comprising also the other New Member States (NMS);
 2007-2010 “Innovation and Competitiveness - Fundamental Vectors of the Economic
and Social Progress of Romania:” the main idea of the Project was represented by the
use with maximum efficiency of human, intellectual and social capital of Romania in
order to ensure an accelerated growth of economic competitiveness, to spur innovative
processes and to reduce regional disparities;
 2006-2008 “Correlating Macroeconomic Policies with R&D Policies in Order to
Accelerate the Convergence Process towards the European Union:” the Project analyzed
the role of macroeconomic policies and of the innovation, research and development
(R&D) sector in the process of economic growth, of increasing the competitiveness in a
modern, knowledge-based economy;
 2005-2008 “Economic Growth, Employment and Competitiveness in a KnowledgeBased Economy:” the Project studied economic growth, and ways to improve the
employment level and increase competitiveness. In the Project were elaborated
stochastic models which allowed a better understanding of the phenomena taking place
on the labour market.
Gabriel Bobeica coordinated the research Project “The Dynamics of Monetary-Fiscal
Interactions in the Context of European Integration. The Role of Expectations Formation.” Among
other objectives, the Project analysed the formation of expectations in the context of European
integration and determined the optimal set of monetary and fiscal policy parameters.
Elena Bojesteanu coordinated the research Project “Modelling the Monetary shocks and
Identifying their International Transmission Mechanisms.” The Project analysed the way in which the
main macroeconomic variables in the Romanian economy are influenced by the monetary policy
promoted in the European Union.
The works of the French and Romanian teams in relation to the Project proposal were
presented in several recent workshops and produced published contributions and articles in the process
of publication.
The French team was mobilized on a particular situation, that of an earthquake which
affected a megalopolis of three million inhabitants, the earthquake of Port au Prince on January 12th,
2010. The team did the economic evaluation of the humanitarian operations, and observed in the
following two years 306 severely wounded persons. Our findings suggested that the system of
formation contributes to a better resilience. For example, the severely wounded remained inclusive in
the system of formation, the rates of inclusion in the work (27% on average) remaining very low, even
two years after the earthquake. According to our results, initial weaknesses of the labour market have
the largest negative impact on the overall resilience of the system (WP4, WP5).
Papers presented at one of the workshops concerned the analysis of the systems of social
welfare, with special attention awarded to France and Romania. The analysis showed that at least the
first part of the regulation can be placed under the paradigm of inclusion. Several studies were
dedicated to the paradigm of the inclusion, based on civil rights. Both plans of the inclusion and the
flexicurity are complementary, and allow the study of recent European regulation in social matters
(WP3).
The second theme of the preliminary works is the role of the organization, with research
conducted previously concerning the role of labour unions. Other studies underlined the essential role
of the organization in the social welfare (WP2). A theoretical synthesis was presented in the last
conference which was held in Bucharest (WP1).
Original and innovative nature of the project
The Project proposal is built around two main ideas:
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(i) intra-EU labour migration flows should be taken into account both in theoretical
models and in empirical exercises meant to obtain estimates on the characteristics of
labour markets. We expect to be able to replicate the observed persistence in the effect
financial and economic crisis had on European labour markets (see for an illustration
Figures 2.1 and 2.2) by combining the model developed by Mandelman and Zlate
(2010) to that of Monacelli (2011). In the empirical section, this idea is implemented
by performing estimations that include relations between countries defined on the
labour migration criteria. These might be panel data methods, or spatial econometrics
methods. We intend to extend the model, relaxing mildly the traditional rational
hypothesis by introducing learning expectations.
(ii) labour market phenomena should be considered when designing macroeconomic
policies. Although this statement may seem trivially true, its relevance is evident if we
put it in a different, more nuanced, form. We argue that the importance of labour
market phenomena in designing monetary and fiscal policies should depend on the
state of the economy in the economic cycle. For example, the central bank should
reconsider the importance of unemployment in the classical tradeoff between price
stability and employment during periods of severe economic downturn. Otherwise,
financial stability might be at risk.
The Project proposal contributes also by innovating in the domain of the methodologies and
techniques used to analyse labour market indicators. We propose a flexicurity indicator which
combines several criteria in a non-linear fashion by using the concept of non-additive measures,
implemented through the Choquet integral. Another contribution consists in computing dynamic
correlations between deviations in labour markets indicators from their natural levels in different EA
members and EA candidate countries.
3.1
SCIENTIFIC PROGRAMME AND PROJECT STRUCTURE
The Project is organized into 4 tasks, associated to underlying research (RTD) activities and
grouping work packages (WP). A task includes one or more working packages. A work package
consists in several subtasks and is determined by an objective. Each subtask materializes in one
deliverable. Overall project management and coordination is performed within a separate work
package (WP0), spanning over the whole duration of the project and ensuring smooth coordination
between research tasks and project partners. Dissemination activities are grouped in a specific work
package, denoted WP1. The complete list of working packages is provided in Table 3.1.
Table 3.1 Work Package List
Work
Work package title
package
number
Block 1
WP0
Project management
WP1
Dissemination
Block 2
WP2
Review of the state of the art
WP3
Review of alternative theories
Block 3
WP4
Development and validation of models
WP5
Data
collection
and
database
construction
Type of
activity
MGT
O
RTD
RTD
RTD
RTD
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Personsmonths
42
30
12
40
32
8
84
32
18
Start
month
End
month
M01
M01
M36
M36
M01
M07
M06
M12
M13
M04
M33
M21
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WP6
Block 4
WP7
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Econometric estimation and analysis
RTD
Policy impacts and analysis
RTD
Total
Note: MGT – Management; O – Other; RTD – Research.
34
12
12
178
M07
M24
M28
-
M36
-
The detailed connections between working packages forming defining the scientific program
of the Project are illustrated in Figure 3.1
Figure 3.1 Project structure in terms of work packages
WP0: Project management
WP4: Development
and validation of
models
WP2: Review of the
state of the art
WP5: Data collection
and database
construction
WP3: Review of
alternative theories
WP7: Policy impacts
and analysis
WP6: Econometric
estimation and
analysis
WP1: Dissemination
Note: the same color indicates working packages included in the same block of tasks.
The Project proposal does not involve ethical issues that could undermine human beings,
animals and/ or the environment.
DESCRIPTION BY TASK
Tables 3.2-1 to 3.2-8 provide a description of the planned activities, detailed by task. Each table
presents the objective to be achieved, the partner(s) involved, their role and their contribution (“who does
what”) in persons-month, as well as a description of the methods and technical choices and the way in
which solutions will be brought.
Table 3.2-1 Work package description WP0
0
Work package number
Work package title
Activity type
Participant
Persons-month per participant
Start date
Management
MGT
1 ASE
15
M01
2 LEM
15
Objective
Ensuring the management and the coordination of the project, in order to deliver all the proposed
results on time, while maintaining high scientific quality of each individual WP and of the project as
a whole.
Description of work by tasks
Task 0.1 Coordination (ASE & LEM)
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The partners will set up and maintain an Agreement and will jointly monitor progress and the status
of WP in relation to resources used, and asses the deliverables. The debut meeting will be organized
in the first month of the project. Subsequent meetings between the Romanian and the French teams
will be organized twice a year and video calls will be held.
Task 0.2 Project website (ASE & LEM)
A project website will be set up, for both internal, as well external actors.
Task 0.3 Internal and external communication (ASE & LEM)
The two partners will develop and maintain appropriate communication protocols and will create
linkages with external institutions or stakeholders, such as the European Commission DirectorateGeneral for Employment, Social Affairs and Inclusion, the European Central Bank, administrative
entities with labour market related responsibilities etc.
Deliverables
Deliverable 0.1 Agreement
Deliverable 0.2 Project website
Deliverable 0.3 Management reports and activity plans
Table 3.2-2 Work package description WP1
Work package number
Work package title
Activity type
Participant
Persons-month per participant
1
Start date
Dissemination
O
1 ASE
6
M01
2 LEM
6
Objective
Dissemination of research results towards the science community and a broader audience. The
dissemination tools include workshops, conferences, articles, electronic media (e.g. website, videos,
graphs) etc.
Description of work by tasks
Task 1.1 Dissemination towards academics (ASE & LEM)
In the first three months of the project, the two partners will agree on a plan for using and
disseminating knowledge obtained during the project. The dissemination strategy will ensure an
appropriate valuing of the methodological advances and results obtained during the Project and will
include two workshops, one held in Romania and one in France, as well as participation to
conferences.
Task 1.2 Dissemination towards policymakers and other potential stakeholders (ASE & LEM)
The dissemination strategy will aim to secure that parties that may be involved into development of
European labour market policy tools are aware of the project results and their applicability. The
dissemination strategy will include regular meetings with policymakers in order to discuss the
progress made in the Project and to assess the relevance of the obtained results.
Task 1.3 Dissemination towards wide public (ASE & LEM)
The two partners will set up a project website, with easy and direct access. The website will be
developed in English, but will contain also Romanian and French sections, in order to be accessible
to a wider audience. The information will focus on explaining the objectives and project related
results, directed towards target groups or profiles. The website will remain available after the project
completion and efforts will be made to keep it further up to date. The actual production of articles is
part of work packages 2 to 7. The management is part of WP0.
Deliverables
Deliverable 1.1 Project presentation
Deliverable 1.2 Final plan for using and dissemination knowledge
Deliverable 1.3 Progress report with annual frequency
Deliverable 1.4 Final report
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Table 3.2-3 Work package description WP2
Work package number
Work package title
Activity type
Participant
Persons-month per participant
2
M01
Start date
Review of the state of the art
RTD
1 ASE
2 LEM
16
16
Objective
Reviewing existing conceptual approaches, theories and empirical studies related to (i) labour market
flexibility and labour market regulation; (ii) approaches of labour markets that take into account
issues like inclusion, workfare and flexicurity; (iii) the efficiency of labour market in accommodating
shocks, and (iv) the relevant experience of European countries that have adopted labour market
policies to mitigate the effects of the crisis.
Description of work by tasks
Task 2.1 State of the art literature review on the importance of labour market flexibility and
efficiency in the adjustment of macroeconomic shocks (LEM)
During this task we will review recent developments concerning the dimensions of labour market
flexibility: relative wage flexibility, real wage flexibility, nominal wage flexibility, geographic
labour mobility, employment flexibility, and functional flexibility. We review also the stylised facts
identified in relation to how labour markets variables adjusted during the crisis started in 2008. We
review also the main theories developed to explain the connections between labour markets and other
markets, awarding special attention to studies elaborated in the context of Optimum Currency Areas
theory.
Task 2.2 State of the art literature review on models developed to capture labour market
frictions, as well as other types of nominal and real rigidities (ASE & LEM)
In this task we review the current state of the art of macroeconomic modelling literature that
incorporates labour market variables and tries to explain labour market phenomena, such as wage
rigidity or persistence of unemployment. We present recent developments in DSGE models that
incorporate search and matching. A special attention is awarded to models that share the basic
ingredients of the models studied in Pissarides (1987) and Mortensen and Pissarides (1994) and
intend to reconcile search and bargaining with observed cyclical behaviour of labour markets.
Task 2.3 State of the art literature review on existing models that include intra-EU migration
flows (ASE)
This task is dedicated to existing models that take into account intra-EU migration flows,
highlighting the ways migration flows are introduced in traditional models. We present also a review
of migration theories providing explanations for the difference between the global dispersion of
income and the moderate intensity of international migration.
Task 2.4 State of the art literature review on methods and techniques used to assess labour
market structural indicators (ASE & LEM)
We review during this task state of the art methods and techniques employed in the estimation of
structural indicators labour market indicators, with special emphasis on Non-Accelerating Inflation
Rate of Unemployment (NAIRU), the relation between unemployment and vacancies (Beveridge
curve), and Skill Mismatch Index. The NAIRU concept, defining equilibrium unemployment as the
rate at which price inflation is not changing, is similar, but not identical to natural employment, that
would prevail in the absence of business cycle fluctuations. NAIRU is by definition a variable of
outmost relevance for macroeconomic policy decisions, having an important role especially in
monetary policy. Methods developed for NAIRU estimation fall in one of the two categories:
structural methods, based on economic theory and econometric techniques designed to identify the
trend of a time series. Besides reviewing the most important methods in each category, we analyse
also the approaches put forward to reduce the uncertainty of the estimations and to combine in a
relevant manner the results yielded by various methods.
Deliverables
Deliverable 2.1 Review of state of the art in labour market flexibility and accommodation of adverse
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shocks
Deliverable 2.2 Review of state of the art in modelling labour market rigidities
Deliverable 2.3 Review of state of the art in models including intra-EU migration flows
Deliverable 2.4 Review of state of the art in estimation of labour market structural indicators
Table 3.2-4 Work package description WP3
3
Work package number
Work package title
Activity type
Participant
Persons-month per participant
M07
Start date
Review of alternative theories
RTD
1 ASE
2 LEM
4
4
Objective
Reviewing of models which provide alternatives to those based on mainstream paradigm of rational
expectations.
Description of work by tasks
Task 3.1 Review of existing models including expectations formation by learning processes
(ASE)
We present in this task the recent developments and main milestones in the literature on learning
expectations. This literature tries to answer the following questions: how do the agents know the
rational expectations equilibrium (REE); which is the ruled governing the learning process; who is
learning; which is the impact of learning expectations on macroeconomic developments.
Task 3.2 Models including other relevant forms of bounded rationality and take into account
agents heterogeneity and interaction (LEM)
This task reviews existing literature on alternative approaches to the mainstream full rationality
paradigm. These imply various concepts of bounded rationality, such as additional restrictions in the
optimization process of the agents; illusions and cognitive anomalies; ecological rationality etc.
Deliverables
Deliverable 3.1 Review of models with learning expectations
Deliverable 3.2 Review of bounded rationality models
Table 3.2-5 Work package description WP4
Work package number
Work package title
Activity type
Participant
Persons-month per participant
4
M13
Start date
Development and validation of models
RTD
1 ASE
2 LEM
20
12
Objective
Developing a set of models to establish the role of labour market in the design of monetary and fiscal
policies. The models will include nominal and real rigidities, and will take into account intra-EU
labour force migration. The models should be able to replicate the observed adjustment of EU labour
markets during financial and economic crisis which started in 2008.
Description of work by tasks
Task 4.1 Identification of stylised facts related to the developments of EU labour markets
during the last boom-bust cycle (LEM)
The financial and economic crisis provides an unique opportunity to test the predictions of models on
how labour market variables should fluctuate in periods of extreme economic downturns. The
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analysis will cover both EA member states as well as EA candidates.
Task 4.2 Developing a DSGE type model that includes intra-EU labour force migration (ASE)
The model will emphasize the role of rigidities and frictions related to labour market in the design of
monetary and fiscal policies. Our model will rely on those developed by Mandelman and Zlate
(2010), and Monacelli (2011) respectivelly. Mandelman and Zlate (2010) examine the business cycle
fluctuations of labour migration and remittance flows as well as their effects on the rest of the
economy. The model is estimated using macroeconomic indicators and data on border enforcement
from the U.S. and Mexico. Mandelman and Zlate (2010) model labour migration by introducing
cross-border labour mobility with sunk emigration costs: foreign households have the option to work
in the home economy where wages are higher. The model built by Monacelli (2011) extends the
basic matching model by allowing firms to issue debt under limited enforcement. An important
assumption of the model is that firms have an incentive to borrow in order to affect wage bargaining.
In consequence, credit shocks can generate sizable employment fluctuations in our model. If the
credit contraction is persistent, the impact of an adverse financial shock will be long lived. If we add
labour migration to this model, we expect this effect to be divided between the labour force importer
and exporter. Also, we expect that the volatility of individual labour market fluctuations to be smaller
than the aggregated one.
Task 4.3 Developing a similar DSGE type model, but with non-rational expectations (ASE)
The model will provide alternative approach to expectations formation, and will try to explain some
stylised facts by deviations from full rationality and the interactions between agents.
Deliverables
Deliverable 4.1 DSGE model augmented to include labour force migration
Deliverable 4.2 Substantiating the link between labour market and other markets
Deliverable 4.3 A set of impulse response functions reflecting the adjustment of labour market
variables included in the model to various macroeconomic shocks
Deliverable 4.4 Simulation within a model with bounded rationality
Deliverable 4.5 Modelling framework for policy analysis
Table 3.2-6 Work package description WP5
Work package number
Work package title
Activity type
Participant
Persons-month per participant
5
M04
Start date
Data collection and database construction
RTD
1 ASE
2 LEM
9
9
Objective
Collecting data and establishing a database of all relevant time series, including data on
macroeconomic variables describing labour market, as well as data from administrative sources, and
micro- (firm level) data, were available.
Description of work by tasks
Task 5.1 Data collection (LEM & ASE)
Data requirements will be identified based on theoretical consideration in WP2 and WP3. The work
on data collection will offer the basic support for the analysis and development of statistical and
econometric methods. We will use statistical data provided by national institutes of statistics,
administrative sources, Eurostat, data from different international organisations including OECD,
IMF and World Bank and will apply to access Wage Dynamics Network (WDN) survey data.
Different data frequencies will be used for the econometric analysis, favour the more frequent
(monthly). The data collected in Task 5.1 is the main support of the construction of the data base in
Task 5.2.
Task 5.2 Construction the database (LEM & ASE)
Setting up a database containing data collected in Task 5.1. The database is necessary in analysing
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and developing of statistical and econometric methods, as well as in determining the feasibility of
models that are developed in WP4.
Deliverables
Deliverable 5.1 Time-series and cross-section data containing labour market indicators (employment
and unemployment rates, employment and unemployment breakdown by age groups, nominal and
real wages, vacancies, number of hours worked, duration of unemployment, youth employment
number of employees etc.) as well as other macroeconomic variables (data reflecting the level of
aggregated economic activity, prices, interest rates, exchange rates etc.)
Deliverable 5.2 Database to be used in the modelling framework
Table 3.2-7 Work package description WP6
Work package number
Work package title
Activity type
Participant
Persons-month per participant
6
M04
Start date
Econometric estimation and analysis
RTD
1 ASE
2 LEM
16
18
Objective
Quantitative assessment of the main structural characteristics of labour markets in the EU. The
analysis will highlight the dynamics of the main labour market structural indicators, trying to identify
the magnitude of the convergence or divergence process among EU members, looking at three
aggregation levels: EU, core EA, peripheral EA members and NMS not in the Euro zone.
Specific objectives
 Identification and quantitative assessment of the main labour market structural indicators.
 Developing an indicator able to capture the convergence or divergence of EU labour
markets in terms of structural developments. Moreover, special attention will be awarded to
interactions between labour markets in EA members and candidates.
 Quantification of the interactions between labour market phenomena and monetary and
fiscal policies.
Description of work by subtasks
Task 6.1 Identification of the most relevant characteristics of the EU labour markets (LEM)
Structural labour market indicators, such as flexibility, mobility, wage-setting mechanisms, and
tightness will be studied. The emphasis will be placed for EA countries on explaining heterogeneity
identified among the indicators during the crisis, while for NMS the first step will be assessing their
availability and relevance.
Task 6.2 Estimating of the natural rate of unemployment – a fundamental indicator for the
medium and long-term labour market developments (ASE)
The Project aims to estimate the natural rate of unemployment on the basis of structural models and
also by means of econometric filtering techniques, as well as to develop a consensus measure for the
natural rate of unemployment. In order to identify dynamics of EU labour markets in terms of
structural developments, we will also calculate rolling window and dynamic correlations between
unemployment gaps in European countries.
Task 6.3 Quantifying the influence of labour market frictions on the relationship between
inflation and unemployment (LEM)
Within this objective, we will estimate the Neo-Keynesian Phillips curve both with microeconomic
foundations and on the basis of a semi-structured model. Moreover, we will quantify the main
frictions that occur on the labour market and the cost of disinflationary policies in terms of
employment.
Task 6.4 Estimating the effects of unemployment on financial stability (ASE)
Financial crisis forced the central bank to put more emphasis on financial stability. Consequently, the
design of the monetary policy should take into account more carefully macroeconomic effects of the
decisions which might threaten the stability of the banking sector or other financial institutions. In
this light, the inflation unemployment trade-off gains more prominence than before, as
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unemployment might be an import factor explaining the non-performing loans (NPLs) of the
household sector. We propose to use panel data methods to estimate the role played by rising
unemployment in the increase in NPL ratios of the household sector.
Task 6.5 Assessing the efficiency of public spending with unemployment benefits (LEM)
The efficiency of public spending with unemployment benefits will be analysed using the Data
Envelope Analysis (DEA) technique.
Task 6.6 Evaluating the vulnerability of labour market to external shocks (ASE)
The impact of the dynamics of external macroeconomic variables on the unemployment rate will be
highlighted using SVAR models. Moreover, we will measure the degree of correlation in terms of
business cycle and unemployment rate between the economies in the EU. The models will include
data on migration flows and will be estimated via methods allowing time-varying coefficients.
Deliverables
Deliverable 6.1 Report on relevant characteristics of the EU labour markets
Deliverable 6.2 Report on estimating of the natural rate of unemployment
Deliverable 6.3 Report on quantifying the influence of labour market frictions on the relationship
between inflation and unemployment
Deliverable 6.4 Report on estimating the effects of unemployment on financial stability
Deliverable 6.5 Report on assessing the efficiency of public spending with unemployment benefits
Deliverable 6.6 Report on evaluating the vulnerability of labour market to external shocks
Table 3.2-8 Work package description WP7
Work package number
Work package title
Activity type
Participant
Persons-month per participant
7
M28
Start date
Policy impacts and analysis
RTD
1 ASE
2 LEM
3
9
Objective
The aim of this WP is to formulate policies to reduce asymmetries in the functioning of EU labour
markets: increasing homogeneity of labour markets developments among EA members and
enhancing labour market flexibility in NMS.
Description of work by tasks
Task 7.1 Analyzing the flexicurity of the NMS labour markets. Drawing lessons from the more
developed EU members (ASE)
Flexicurity is a newer and less studied concept in NMS. We identify the main indicators that measure
the flexicurity of a labour market and develop a comparative analysis of these indicators at the EU
level, in order to provide support for elaborating flexicurity policies in NMS. We study also the
implications of a new flexicurity concept for the sustainability of macroeconomic equilibrium after
entering the Euro zone. Within this objective, we analyze the implications of flexicurity for the
natural rate of unemployment and for the short-term trade-off between inflation and unemployment.
Task 7.2 Analyzing the labour market capacity to achieve macroeconomic adjustment (LEM)
This task seeks to put forward the criteria related to labour market flexibility and mobility within the
Theory of Optimum Currency Areas (OCA). Combining the experience of EA members, that are
bounded by common monetary policy, as well as that of the candidate countries that had the
possibility to use exchange rate as an additional adjustment mechanism, we quantify the speed of
reaction of wages and unemployment to external shocks, depending on the exchange rate regime:
fixed or flexible. We also conduct a counterfactual analysis intended to suggest whether EA
members would have been better off without independent monetary policy, respectively whether
NMS economies would have fared better with common monetary policy during the crisis.
Task 7.3 Analysing the response of labour market policies to the financial and economic crisis
(LEM)
We analyse the measures taken by governments in EU countries to reform labour markets, assessing
their short-run costs, as well as prospective long-term results.
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Deliverables
Deliverable 7.1 Report on analysing flexicurity of the NMS labour markets
Deliverable 7.2 Report on analysing the labour market capacity to achieve macroeconomic
adjustment
Deliverable 7.3 Report on the efficacy of labour market reforms adopt in EU during financial and
economic crisis
Deliverable 7.4 Synthesis report: implications for the new labour market policy instruments and
policy advices that emerged from the analysis
The summary of staff efforts is presented in Table 3.3.
Table 3.3 Staff efforts
Work
ASE
(personspackage
months)
number
Block 1
21
WP0
15
WP1
6
Block 2
20
WP2
16
WP3
4
Block 3
45
WP4
20
WP5
9
WP6
16
Block 4
3
WP7
3
Total
89
LEM
(personsmonths)
21
15
6
20
16
4
39
12
9
18
9
9
89
Total
42
30
12
40
32
8
84
32
18
34
12
12
178
Table 3.4 Task coordination in LEM
Work
package
number
Block 1
WP0
WP1
Block 2
WP2
WP3
Block 3
WP4
WP5
WP6
Block 4
WP7
Work package title
Coordination for LEM : CALLENS (15)
Seminar LEM (6)
Project management
Dissemination
Seminar LEM (20)
Review of the state of the art
Review of alternative theories
Post Doc (s) LEM (24)
Seminar LEM (15)
Development and validation of models
Data collection and database construction
Econometric estimation and analysis
BOUGHATTAS (9)
Policy impacts and analysis
Total
Subtotal LEM
Type of
activity
Personsmonths
Start
month
End
month
30
12
40
32
8
84
M01
M01
M36
M36
M01
M07
M06
M12
32
18
34
12
12
178
89
M13
M04
M07
M33
M21
M24
M28
-
M36
-
42
MGT
O
RTD
RTD
RTD
RTD
RTD
RTD
-
Note: MGT – Management; O – Other; RTD – Research.
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In order to accomplish the highest degree in the achievement of the Project’s objectives, the
methodology of the Project is designed in accordance with its degree of complexity. The flexibility
and efficiency of labour market in accommodating adverse macroeconomic shocks is addressed using
specific tools in the field of Applied microeconomics, Macroeconomics, Econometrics, Mathematics
applied to economics and Dynamic economic systems. Thus, to assess characteristics of the EU labour
markets we will use the Weibull and lognormal distribution, based on which several measures of
nominal and real rigidity will be built. Assessing the implications of interactions between labour
market efficiency and price stability on the design of macroeconomic policies will be explored by
simulating scenarios of macroeconomic policies in the context provided by the DSGE models, whose
parameters are calibrated and estimated by Bayesian methods using the software package Dynare.
Long-term relationships between variables will be identified by applying econometric techniques
designed to capture the presence of the unit-root phenomena, such as Dickey-Fuller, Phillips-Perron,
KPSS, and by applying co-integration tests such as Johansen or Engle-Granger. We will use also the
panel versions of the unit-root tests and cointegration tests. The estimation of the natural rate of
unemployment is approached by a set of methods, which will include structural models, filtering
techniques such as Hodrick-Prescott, Baxter-King, Christiano-Fitzgerald, and Kalman, but also
reduced models. To ensure robust estimates, the results obtained using different estimation methods
will be aggregated into a consensus measure similar to that proposed by Darvas and Vadas (2003),
whose validity will be compared with that of a conventional method, based on the principal
component analysis. Identification of shocks and of the mechanisms behind their propagation will be
based on Vector Auto Regressive (VAR) models, identified using restrictions and estimated in a
Bayesian context. The Project will use modern computers and powerful software packages such as
EViews, Matlab, Maple, Gauss, Ox, GiveWin, and TSP.
Calendar of the project
1.3.
TASK SCHEDULE
The schedule of the tasks and their dependencies are presented in Table 3.4.
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Table 3.4 Project plan
Work
Start
End 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
package
month month
WP0 Project
M01
M36
management
WP1
M01
M36
Dissem.
WP2
M01
M06
Review of
the state of
the art
WP3
M07
M12
Review of
alternative
theories
WP4
M13
M33
Develop.
and valid. of
models
WP5 Data
M04
M21
collection
and database
construction
WP6
M07
M24
Econometric
estimation
and analysis
WP7 Policy
M28
M36
impacts and
analysis
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Table 3.5 Deliverables list
Delivery number
Project FEELM
Delivery
date
M01
M02
M01-M36
M02
M04
WP number
Nature
0.1 Agreement
0.2 Project website
0.3 Management reports and activity plans
1.1 Project presentation
1.2 Final plan for using and dissemination
knowledge
1.3 Progress report with annual frequency
0
0
0
1
1
O
O
RTD
O
RTD
1
RTD
1.4 Final report
2.1 Review of state of the art in labour
market flexibility and accommodation of
adverse shocks
2.2 Review of state of the art in modelling
labour market rigidities
2.3 Review of state of the art in models
including intra-EU migration flows
2.4 Review of state of the art in estimation of
labour market structural indicators
3.1 Review of models with learning
expectations
3.2 Review of bounded rationality models
1
2
RTD
RTD
M12, M24,
M36
M36
M02
2
RTD
M04
2
RTD
M06
2
RTD
M06
3
RTD
M12
3
RTD
M12
4.1 DSGE model augmented to include
labour force migration
4.2 Substantiating the link between labour
market and other markets
4.3 A set of impulse response functions
reflecting the adjustment of labour market
variables included in the model to various
macroeconomic shocks
4.4 Simulation within a model with bounded
rationality
4.5 Modelling framework for policy analysis
4
RTD
M18
4
RTD
M18
4
RTD
M24
4
RTD
M33
4
RTD
M33
5.1 Time-series and cross-section data
5
RTD
5.2 Database to be used in the modelling
framework
5
RTD
M09, M12,
M15
M18, M21
6.1 Report on relevant characteristics of the
EU labour markets
6.2 Report on estimating of the natural rate of
6
RTD
M12
6
RTD
M12
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unemployment
6.3 Report on quantifying the influence of
labour market frictions on the relationship
between inflation and unemployment
6.4 Report on estimating the effects of
unemployment on financial stability
6.5 Report on assessing the efficiency of
public spending with unemployment benefits
6.6 Report on evaluating the vulnerability of
labour market to external shocks
7.1 Report on analysing flexicurity of the
NMS labour markets
7.2 Report on analysing the labour market
capacity
to
achieve
macroeconomic
adjustment
7.3 Report on the efficacy of labour market
reforms adopt in EU during financial and
economic crisis
7.4 Synthesis report: implications for the new
labour market policy instruments and policy
advices that emerged from the analysis
Project FEELM
6
RTD
M18
6
RTD
M18
6
RTD
M24
6
RTD
M24
7
RTD
M31
7
RTD
M31
7
RTD
M35
7
RTD
M35
2. DISSEMINATION AND EXPLOITATION OF RESULTS AND INTELLECTUAL PROPERTY
The quality of a macroeconomic management is a major determiner of the development and
the disparities which affect the various parts of the globe.
The European policies have to find a dynamic coherence between accompanying policies of
the labor market and the macroeconomic policies, such as the fiscal and monetary policies. The study
is designed by taking into account more particularly the situation of two countries, Rumania and
France, among which the one has to join the Euro Area, and the other one takes the path of the
flexicurity with the collective agreement of January 11th, 2013. The disparities of the consequences of
the financial crisis which began in 2008 in the European Union bring to wonder about the most
efficient forms of functioning of the labor markets.
The spillovers can be presented to several levels. At the European level, it is a question of
having a better coherence of the instruments of social policy and macroeconomic management,
of contributing to the European cohesion by a better efficiency of the European labor markets. At
the level of Romania and of France, the expected spillovers are the following ones:
 identify the characteristics of the labor market in Rumania and in France, estimate
the flexibility and the rigidity of the labor market Rumanian as well as to identify the
mechanisms of the determination of wages;
 analyze the flexicurity of the Rumanian market, and compare with the French
situation. In the identification of the main European indicators of flexicurity, a
particular attention will be carried in the consequences of the collective agreement of
January 11th, 2013 in France;
 quantify the influence of the frictions of the labor market on the relations between
the inflation and the unemployment;
 estimate the role of the nominal rigidity for the monetary policy;
 estimate the natural rates of unemployment (NRU) to understand better the longterm evolutions;
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


Project FEELM
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estimate the degree at which the labor market is vulnerable in external shocks.
analyze the capacity of the labor market of macroeconomic adaptation after the
renunciation to the independence of the monetary policy. The purpose is to establish
the criteria relative to the flexibility and the mobility of the labor market in the
theory of the optimal monetary areas. We shall also quantify the reaction speed of
salaries and unemployment in front of external shocks under a fixed rate of
exchange;
the implications of the new concept of flexicurity for the sustainability of the
macroeconomic policy.
3. CONSORTIUM DESCRIPTION
3.1.
PARTNERS DESCRIPTION, RELEVANCE AND COMPLEMENTARITY
University of Artois (Université d’Artois) is under the umbrella of the PRES of Lille Nord de
France. The LEM (Lille Economics Management UMR 8179 CNRS, with main universities:
University of Lille 1; other ones: CNRS, University of Artois, Polytechnic University Federation of
Lille) groups around 100 researchers in economics and management. It is structured in 5 fields (Bank
Currency Finance, Strategy and Organisation Management, Marketing, Health economics and
management, Measurement of the efficiency and the productivity).
The LEM laboratory manages in average 6 submitted PhDs by year, of which 40% have
been facilitated by a grant or a benefit. The health field representing 12% of the staff contributes to
75% of the publications of the LEM laboratory in the CNRS rated 1* lists surveys and to 33% of the
rated 1 surveys (LEM overview 2009). The global appraisal of the LEM by the AERES is an “A”.
Established by Royal Decree on April 6, 1913, The Bucharest University of Economic
Studies (ASE) is a research intensive university which ranks among the top 12 leading Romanian
universities. The Economic Research Department of ASE assures the logistics to the University’s
structures for the scientific research activity. It coordinates and guides the executive activity of the
research centers. There are 8 major research centres in university, including Center for Advanced
Research in Finance and Banking – CARFIB and Research Centre for Economic Analysis and
Economic Policy, centres which are responsible for this project. Involvement of two research centres
is necessary because the project is focused on the interdependencies between labour market and
financial market.
The main arguments supporting the ability of the ASE to achieve the project are: (1) in the
period 2008 - 2012 ASE has worked successfully more than 1,100 research projects totaling about
EUR 28,3 million, half of this amount coming from international sources; (2) ASE edits and
financially supports two journals indexed in the prestigious database ISI-Web of Knowledge
(Thomson Reuters); (3) in the mentioned period ASE researchers published over 700 articles ISI Web
of Knowledge (including in prestigious journals as Applied Economics Letters, Journal of Multivariate
Analysis or Systems Research and Behavioral Science) and participated in over 600 international
conferences whose books are published as ISI proceedings.
Complementarity and relevance
The collaboration between ASE and University of Artois dates back over seven years and
has resulted in the period from 2008 to 2011 through joint master’s program Management and
Enterprise Planning. Three promotions have successfully graduated the paid dual degree master’s
program with a unique academic profile in Romania. As each discipline was the responsibility of two
professors, a Romanian and a French one, the program has provided effective collaboration of
professors from both universities.
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The added value of collaboration in the master program consisted of both know-how that
graduates have been endowed, as well as permanent scientific cooperation relationships between
professors involved in the program. The results of long-term collaboration between the two
universities are: (1) the participation of researchers from the University of Artois, prof. Duez and prof.
Callens in the scientific committees of the two peer-review journals published by ASE (Economia.
Seria Management and Business Excellence and Management); (2) the participation of professors
from the University of Artois (prof. Callens, prof. Duez, and prof. Taillandier) in scientific committees
of conferences organized by ASE; (3) research visits of the Romanian professors at the University of
Artois (e.g. prof. Dudian) and of the French professors at the ASE.
The results mentioned above have enabled professors from the two universities to exchange
knowledge between them. For example, prof. Callens and prof. Dudian have a common field of
research and teaching: the economy of organizations. Market rigidities, the implications of migrations
on industries and the impact of economic crisis on organizations and markets are important subjects in
industrial organization. Another area of common interest for professors of the universities (especially
prof. Callens, lecturer Bobeica and prof. Dudian ) is the economics of risk from the macroeconomic
perspective. Two other researchers involved in this project, lecturer Dobre and researcher Talarowski
share their interest for labour market.
Each year, a workshop is organized between ASE and LEM. The last editions:
 Bucharest, 7-8 October 2011: «Croissance économique et soutenabilité sociale.
Défis et perspectives européennes,» National Institute of Economic Research,
Romanian Academy; contribution: Callens S., “Will the Behavioral Economics
Revolutionize Health Policy ?”;
 Arras, 7 June 2012, third French-Romanian worshop «La refondation du secteur
sanitaire et médico-social en France et en Roumanie»; contribution Callens S.,
Minhindou M., Khallaf N., “Après Bismarck et Beveridge, l’inclusion?”
This project would allow the team to capitalize the experience gained so far and moving to
a higher stage: joint research and joint development of scientific papers. The models developed in this
project and its scientific results (mentioned in the list of deliverables) will enrich the world scientific
economic literature. In addition, the project will improve the decision-making fundamentals of
macroeconomic policies in both countries.
These research works can be innovative (cross disciplinary cooperation, sharing of
benchmark cohorts, clearer and deeper programming).
5.2 QUALIFICATION AND CONTRIBUTION OF EACH PARTNER
Monica Dudian: 43 years old, university professor, PhD in Economics from 1999
Career
Professor, ASE, 2007 – present; Vice dean, Faculty of Economics, ASE, 2001 – 2008;
Associate Professor, ASE, 2002 – 2007; Lecturer, ASE, 1998 – 2002; Lecturer, Romanian Banking
Institute, 1999 – 2000; Assistant Professor, Faculty of Economics, ASE, 1993 – 1998.
Other professional experience: director of 4 research grants (total value 110,000 euro),
member of two editorial boards in Romania and abroad, member of organizing committees of six
conferences, chairman of one conference organizing committee, keynote speaker at many events
organized by business community, like the prestigious event “The 60th International Banking Summer
School (2007)”.
Publications: 6 books (2 single author and 4 coauthor), 29 articles in peer-reviewed
journals, 11 papers in peer-reviewed conferences procedings.
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Five publication over the last five years: Analysis on the Relationship between Rating and
Economic Growth for the EU Emergent Economies, World Academy of Science, Engineering and
Technology, nr. 64/2012, ISSN 2010-376x; (2) Analyzing the relation between interest rate and
sovereign rating using a Markov-Switching Model, African Journal of Business Management, vol.
5(4): 1481 – 1492, 2011; (3) The Status of Credit Standardizations in Romania. In Yuzhong, C.,
Yumin, Q ed., Domestic and Foreign Credit Theory Studies and Standardization practices, China
Metrology Publishing House, pages 394 – 418, 2010, (4) Transicion y desarrollo en Europa Central y
Oriental, 1990 – 2008. In Bernal, C.A.R., Toto, R. M. C. ed., La quimera del desarrollo mexicano,
Editorial Itaca, Mexico, D.F., pages 119-152, 2010, (5) Economics, C.H.Beck Publishing House, 2009.
Callens Stéphane : 58 years old, university professor, PhD in economics (1994).
Career
1977-1996: Researcher (Collège de France ; CEE, Noisy; CNRS)
1994- 2000: Lecturer (University of Lille 1)
2000-: University professor (UBO, University of Artois), researcher LEM UMR 8179 CNRS
Responsabilities
September 2005: elected Dean of the Faculty of Management and Economics at the University of Artois.
Director of laboratory (2004-2010); actually vice-dean, faculty EGASS, University of Artois.
Research
First publication in 1979. By 31.12.2012: 207 numbered work papers; 6 books, 21 contributions in collective
works, 5 coordinated works, 15 articles in international reviews.
Five publications(books)
La Catastrophe, Louvain : EME, 2012.
Normativité et systèmes intelligents, in Lavenus J.-J., Villalba B., Vidéosurveillance et détection automatique
des comportements anormaux, Septentrion, 2011, 159-180.
(avec UZUNIDIS, D.) Gouvernance. Exercices du pouvoir, L’Harmattan, Marché et organisations, 9, 2009, 252
p.
(avec BROT J., GERARDIN H., PETIT O.) Catastrophes et gouvernance, Intercommunications, Louvain, 2008,
210 p.
« La gestion technique de la catastrophe et le rescapé », dans VARASCHIN, D., LALOUX, L., (éd.) Courrières,
aux risques de l’Histoire, Vincennes : GRHEN, 2006, 141-156.
Five publications(Articles)
“Will the Behavioral Economics Revolutionize Health Policy ?”, Int Jo of Applied Behavioural Ec, forthcoming
2012
Religions, risques, régulation : tensions et dynamiques, Mondes en développement, 2009, 146, 2, 95-109.
(Introduction au dossier n°11) Catastrophes et Territoires, Développement Durable et Territoires
http://www.revue-ddt.org
L’origine des inégalités. Religion et innovation à l’âge du cuivre, Innovations, Bruxelles, 2008,1-27.
De l’opposition entre l’Urgence et le Développement à la prise de conscience des spécificités des problèmes de
gouvernance en période d’urgence, Mondes en développement, Bruxelles, 137, 2007, 1, 7-10.
Mihaela Hrisanta Dobre: 34 years old, lecturer, PhD in Economics from 2007
Career: Lecturer, ASE, 2007 – present; Assistant Professor, Faculty of Economics, ASE, 2002 –
2007.
Undergraduate courses: Labour Market at Faculty of Economics, Microeconomics and
Macroeconomics in French at Faculty of Business Administration, and Intermediate Microeconomics
at Faculty of Economics.
Other professional experience: postdoctoral scholarship during 2010-2012, member in four research
contracts, member of organizing committees of five conferences.
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Publications: 4 books: 2 single author (Labour Market. A microeconomic analysis, and Analysis of
labor market discrimination in Romania) and 2 coauthor, 15 articles in peer-reviewed journals, 8
papers in peer-reviewed conferences proceedings.
Five publication over the last five years:
Dobre M.H., Visan C., An econometric estimation of the wage determinants in the light industry,
Revista Industria Textila, ISSN: 1222-5347, ISI rated magazine, included in the ISI Master Journal
List of the Institute of Science Information, Philadelphia, USA, 2012 p.213-217.
Dobre M.H., Tudor E., The Analysis of the Ethnical Discrimination on the Manpower’s Market under
the Economical Crisis, Theoretical and Applied Economics, vol. XIX , no.6 (671), p.59-74, 2012.
Ailenei D., Dobre M., Marinas M., Labor market deficits in Romania. A regional approach,
Theoretical and Applied Economics, p. 21-29, 2011.
Ailenei D, Dobre M., A fuzzy sets model for companies behaviour of absorbtion minimum wage
shocks, Journal of Economics Studies and Research , 2011
Dobre M.H., Ailenei D., Cristescu A., Labour market segregation in Romania at region level,
Romanian Journal of Regional Science, 2p. 53-64, 2011.
Cosmin Mosora: 32 years old, lecturer, PhD in Economics from 2009
Career: Lecturer, ASE, 2011 – present; Assistant Professor, Faculty of Economics, ASE, 2003 –
2007.
Undergraduate courses: Microeconomics, Macroeconomics, and European Economics
Other professional experience: postdoctoral scholarship during 2010-2013, member in four research
contracts, member of organizing committees of three conferences.
Publications: 3 books: 1 single author and 2 coauthor, 10 articles in peer-reviewed journals, 6 papers
in peer-reviewed conferences proceedings.
Five publication over the last five years:
Ives B., Alama M., Mosora C., Teacher education budget cuts in Romania and the US: points of
contrast and comparison, Educational Research, ISI rated magazine, included in the ISI Master
Journal List of the Institute of Science Information, accepted for publication, 2013.
Mosora M., Mosora C. E., The access to education in Romania. A regional study, Procedia - Social
and Behavioral Sciences, accepted for publication, 2013.
Dobre M., Mosora C., Strilciuc E., The Analysis of Labour Market Discrimination in Romania Using
Fictitious Resumes, International Journal of Economic Practices and Theories, 2(1): 48-52, 2012.
Angelescu C., Dobre M., Mosora C., School-to-work transition and labor market integration of
Romanian universities graduates, Journal of economic-financial theory and practice, 3(50): 37-44,
2010.
Dobre M., Angelescu C., Mosora C., Labor market integration of higher education economic
graduates, The Annals of the University of Oradea, 19(1): 196-201, 2010.
Other on-going projects, the link between the proposed research work and the prior or on-going
research.
Partner
ASE
Name of involved
people
Dudian Monica
Project name, funding institution, grant
allocated
Sustainable Development: Fundamental
Framework of the Corporate Governance
Mechanisms. Application upon the Textile
Industry and the Textile Products from
Romania, financed from the European
Social Fund through Sectoral Operational
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Start and end dates
December, 2010 - March,
2013
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ASE
Dudian Monica
LEM
Callens Stéphane
(coordinator)
Project FEELM
SCIENTIFIC DOCUMENT
Programme
Human
Resources
Development 2007-2013, project number
POSDRU/89/1.5/S/56287, approx. 6000
Euro
Corporate Rating in a Knowledge Based
Economy: Information Value, Evaluation
Models and Macroeconomic Impact,
financed by CNCSIS, within PNII frame,
exploratory research projects, code
CNCSIS 1801, approx. 100000 Euro.
Sutra², financed by ANR
January,
2009
December, 2011
-
July 2010- January, 2013
The main objective of the project „Sustainable Development: Fundamental Framework of
the Corporate Governance Mechanisms. Application upon the Textile Industry and the Textile
Products from Romania” was the analysis of governance mechanisms (in the meaning of the
Transaction Cost Economics) and the industrial organizational forms within the textile industry and
textile products sector in order to identify organizational innovations to assure the long term viability
of the enterprises. During the transition process, the textile industry of Romania suffered two main
shocks: the adhesion at the EU and the recent economic crisis. The project studied two topics related
to current project proposal: the impact of EU accession (free movement of labor) on the labor market
in the textile industry (labor cost and labor flexibility and availability) in Romania and its impact on
the textile industry, under EU country status.
The project „Corporate Rating in a Knowledge Based Economy: Information Value,
Evaluation Models and Macroeconomic Impact" was complex and focused on credit rating models and
on credit rating impact at macroeconomic level. The models using to evaluate credit risk are structural,
statistical and reduced-form models, and are close to the methods used for estimating the NAIRU. In
addition, the study of credit risk involves studying the behavior of firms, which is one of the building
blocks of DSGE models. Prior projects of prof.Dudian are also related to this proposal, as their titles
suggest: “Management of Country Risk in the EU Enlargement Context”, financed by Ministry of
Education and Research, 2005 – 2006, “Economic Policies for Growth”, financed by Ministry of
Education and Research, 2005 – 2006, “Macroeconomic Policies in Romania in the European
Enlargement Framework. Opportunities and Risks of the EU Integration”, financed by Ministry of
Education and Research, 2002 – 2004.
The SuTra² study, (SUivi/TRAitement/TRAumatisme) on the follow-up treatment of limb trauma
during massive intakes of wounded in difficult contexts, came about following discussions about the
importance of medical care further on from the acute emergency period. It aimed to identify and
analyse the medical, socio-economic and psychological consequences of limb amputation or surgical
reconstruction so as to determine appropriate care for limb trauma during natural disasters. At one
year, the degree of satisfaction reported by limb wounded patients with respect to their functional
capacity was similar whether their limb(s) had been amputated or reconstructed (72% of patients
satisfied or very satisfied). However a majority of amputees would have preferred to have had
reconstructive surgery. Socio-economically, over three quarters of patients have not found work after
the earthquake, and over 40% live in tents. The two year data collection results described diverging
socio-economical statuses for the two groups: for example, the employment rate is 21% for amputees
compared with 37% for non-amputees. The SuTra² project is financed by the French National
Research Agency.
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Articles and Working papers related to the project
W1 : Callens, S. and Cherfi,S, Behavioral economics of organizations : the organization as acculturation, The 6th
International Conference AOM, 2012 (November 15-16, Bucharest).
W2 : Callens S., Minhindou M., Khallaf N., Après Bismarck et Beveridge, l'inclusion ? , Third FrenchRumanian workshop « La refondation du secteur sanitaire et médico-social en France et en Roumanie » Arras,
june 7, 2012.
W3 : Callens S., Will the Behavioral Economics Revolutionize Health Policy ?, In « croissance économique et
soutenabilité sociale. Défis et perspectives européennes », Maison de l’Académie Roumaine des Sciences,
Institut National de la Recherche Economique, Bucharest, oct. 7-8 2011.
W4 : Khallaf N., Shang L., Müller J., Callens S., Allafort-Duverger T., Blackwell N., Delauche M.-C., Le Perff,
H., Haiti, two years after : What has happened to the injured? Factors affecting social integration of the 12 th
January 2010 earthquake victims in Port-au-Prince, International Disaster and Risk Conference, Davos, August
2012, 377-380.
W5 : Khallaf N., Shang L., Müller J., Callens S., Allafort-Duverger T., Blackwell N., Delauche M.-C., Le Perff,
H., Medical Treatment options and Patient Preference, International Disaster and Risk Conference, Davos,
August 2012, 381-384.
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