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BLANC PROGRAMMETRANSNATIONAL COLLABORATION

BILATERAL AGREEMENT2013 EDITION

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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 researchX Basic Research Industrial Research Experimental Development

International cooperation International cooperation with ANCS (Rumania)

Coordinating partner

Name and first name of the French coordinator: CALLENS STEPHANE

Identification of the organisation (laboratory, company…): LEM UMR 8179 CNRS

Link with a project of the Investment for the Future (“Investissements d’avenir”) programme

Yes X NoIf yes, indicate the project:

ANR-GUI-AAP-06 – Doc Scientifique 2013 1/38



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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 (coordinator or partner) and the requested funding.

Number Country Organisation Role in the project (coordinator or partner) Requested funding to the ANR (euros) Requested funding to the foreign agency (euros)

2

FranceLILLE ECONOMIE MANAGEMENT UMR 8179 CNRS, Université d’Artois (réf : U.Lille 1) Partner 130 000 €

1Rumania Bucharest University of Economic

Studies (ASE) Coordination 130




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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 Field of research*

Involvement in the project (person.months)**

Role and contribution to the project4 lines maximum

LEM UMR 8179 CNRS CALLENS Stephane D. Professor Behavioural economics; Disaster economics.

15 Coordinator FranceAnalysis; Behavioral modelization

LEM UMR 8179 CNRS TALAROWSKI David Postdoc Labor Economics 8 Models of labor market; analysisLEM UMR 8179 CNRS BOUGHATTAS Yosra Lecturer Labor Management 9 Labor management and labor market analysisLEM UMR 8179 CNRS CHERFI Sofiane Postdoc Management 8 Household DecisionLEM UMR 8179 CNRS KHALLAF Nezha Postdoc Industrial Ec. 8 Norms and Conventions

ASE BOBEICA Gabriel Lecturer Macroeconomics

CoordinatorMacroeconomic modelling; econometric analysis; estimation and calibration of models

ASE DOBRE Mihaela-Hrisanta Lecturer Labor Economics Analysis of Labor marketASE DUDIAN Monica Professor Macroeconomics Macroeconomic analysisASE BOJESTEANU Elena Lecturer Monetary Policy Econometric analysisASE MOSORA Cosmin Lecturer Labor Economics Panel data econometrics* only to be indicated for Social Sciences and Humanities** to be indicated with respect to the total project duration




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1. EXECUTIVE SUMMARY OF THE PROPOSAL...........................................................52. CONTEXT, POSITION AND OBJECTIVES OF THE PROPOSAL........................................5

1.1. Objectives, originality and novelty of the project...............................................................71.2. State of the art..........................................................................................................83.1 Scientific programme and project structure.....................................................................18Description by task.............................................................................................................191.3. Task schedule.........................................................................................................27

2. DISSEMINATION AND EXPLOITATION OF RESULTS AND INTELLECTUAL PROPERTY.......303. CONSORTIUM DESCRIPTION..........................................................................31

3.1. partners description, relevance and complementarity.........................................................315.2 Qualification and contribution of each partner................................................................32

4. SCIENTIFIC JUSTIFICATION OF REQUESTED RESOURCES.........ERREUR ! SIGNET NON DÉFINI.

4.1. Partner 1: ASE.............................................................Erreur ! Signet non défini.4.2. Partner 2: LEM............................................................Erreur ! Signet non défini.

RO-FR Cooperation - 4



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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.)

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EU27 Total EA15 Total EA15 TotalMin EA15 Total Max 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 ratesacross EU27 and EA15 countries (standard deviation, %)

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Std. dev. EU27 Std. dev. EA15 Std. dev. EU27 non EA15

Source: Eurostat, own calculations.

1 EA15 countries: Belgium, Spain, Ireland, Italy, Luxembourg, Netherlands, Germany, Finland, France, Austria, Portugal, Greece, Slovenia, Cyprus and Malta.




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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 common currency, as the flexibility of labour market becomes vital when other policies, such as the




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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 severe. From this point of view, studying the labour force flexibility is highly relevant for those economies which are preparing to join the EMU.




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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.

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




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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.

The Choquet integral appears as a result of the intention to integrate with respect to a non-additive 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




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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 neo-Keynesian 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 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.




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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 Non-Accelerating 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 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




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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 cross-country 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 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.




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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 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




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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.

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.




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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 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




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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 Knowledge-Based 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:(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.




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(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 ListWork

package number

Work package title Type of activity

Persons-months

Start month

End month

Block 1 42WP0 Project management MGT 30 M01 M36WP1 Dissemination O 12 M01 M36Block 2 40WP2 Review of the state of the art RTD 32 M01 M06WP3 Review of alternative theories RTD 8 M07 M12Block 3 84WP4 Development and validation of models RTD 32 M13 M33WP5 Data collection and database

constructionRTD 18 M04 M21

WP6 Econometric estimation and analysis RTD 34 M07 M24Block 4 12WP7 Policy impacts and analysis RTD 12 M28 M36

Total - 178 - -Note: MGT – Management; O – Other; RTD – Research.

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




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WP0: Project management

WP1: Dissemination

WP2: Review of the state of the art

WP3: Review of alternative theories

WP4: Development and validation of

models

WP7: Policy impacts and analysis

WP5: Data collection and database construction

WP6: Econometric estimation and

analysis

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

Work package number 0 Start date M01Work package title ManagementActivity type MGTParticipant 1 ASE 2 LEMPersons-month per participant 15 15

ObjectiveEnsuring 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 tasksTask 0.1 Coordination (ASE & LEM)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 Directorate-General for Employment, Social Affairs and Inclusion, the European Central Bank, administrative entities with labour market related responsibilities etc.




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DeliverablesDeliverable 0.1 AgreementDeliverable 0.2 Project websiteDeliverable 0.3 Management reports and activity plans


Work package number 1 Start date M01Work package title DisseminationActivity type OParticipant 1 ASE 2 LEMPersons-month per participant 6 6

ObjectiveDissemination 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 tasksTask 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.

DeliverablesDeliverable 1.1 Project presentationDeliverable 1.2 Final plan for using and dissemination knowledgeDeliverable 1.3 Progress report with annual frequencyDeliverable 1.4 Final report


Work package number 2 Start date M01Work package title Review of the state of the artActivity type RTDParticipant 1 ASE 2 LEMPersons-month per participant 16 16

ObjectiveReviewing existing conceptual approaches, theories and empirical studies related to (i) labour market




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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 tasksTask 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.

DeliverablesDeliverable 2.1 Review of state of the art in labour market flexibility and accommodation of adverse shocksDeliverable 2.2 Review of state of the art in modelling labour market rigiditiesDeliverable 2.3 Review of state of the art in models including intra-EU migration flowsDeliverable 2.4 Review of state of the art in estimation of labour market structural indicators


Work package number 3 Start date M07




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Work package title Review of alternative theoriesActivity type RTDParticipant 1 ASE 2 LEMPersons-month per participant 4 4

ObjectiveReviewing of models which provide alternatives to those based on mainstream paradigm of rational expectations.

Description of work by tasksTask 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.

DeliverablesDeliverable 3.1 Review of models with learning expectationsDeliverable 3.2 Review of bounded rationality models


Work package number 4 Start date M13Work package title Development and validation of modelsActivity type RTDParticipant 1 ASE 2 LEMPersons-month per participant 20 12

ObjectiveDeveloping 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 tasksTask 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 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




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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.

DeliverablesDeliverable 4.1 DSGE model augmented to include labour force migrationDeliverable 4.2 Substantiating the link between labour market and other marketsDeliverable 4.3 A set of impulse response functions reflecting the adjustment of labour market variables included in the model to various macroeconomic shocksDeliverable 4.4 Simulation within a model with bounded rationalityDeliverable 4.5 Modelling framework for policy analysis


Work package number 5 Start date M04Work package title Data collection and database constructionActivity type RTDParticipant 1 ASE 2 LEMPersons-month per participant 9 9

ObjectiveCollecting 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 tasksTask 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 and developing of statistical and econometric methods, as well as in determining the feasibility of models that are developed in WP4.

DeliverablesDeliverable 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




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Work package number 6 Start date M04Work package title Econometric estimation and analysisActivity type RTDParticipant 1 ASE 2 LEMPersons-month per participant 16 18

ObjectiveQuantitative 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 subtasksTask 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 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.




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DeliverablesDeliverable 6.1 Report on relevant characteristics of the EU labour marketsDeliverable 6.2 Report on estimating of the natural rate of unemploymentDeliverable 6.3 Report on quantifying the influence of labour market frictions on the relationship between inflation and unemploymentDeliverable 6.4 Report on estimating the effects of unemployment on financial stabilityDeliverable 6.5 Report on assessing the efficiency of public spending with unemployment benefitsDeliverable 6.6 Report on evaluating the vulnerability of labour market to external shocks


Work package number 7 Start date M28Work package title Policy impacts and analysisActivity type RTDParticipant 1 ASE 2 LEMPersons-month per participant 3 9

ObjectiveThe 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 tasksTask 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.

DeliverablesDeliverable 7.1 Report on analysing flexicurity of the NMS labour marketsDeliverable 7.2 Report on analysing the labour market capacity to achieve macroeconomic adjustmentDeliverable 7.3 Report on the efficacy of labour market reforms adopt in EU during financial and economic crisisDeliverable 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.




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Table 3.3 Staff effortsWork

package number

ASE(persons-months)

LEM(persons-months)

Total

Block 1 21 21 42WP0 15 15 30WP1 6 6 12Block 2 20 20 40WP2 16 16 32WP3 4 4 8Block 3 45 39 84WP4 20 12 32WP5 9 9 18WP6 16 18 34Block 4 3 9 12WP7 3 9 12Total 89 89 178

Table 3.4 Task coordination in LEM

Work package number

Work package title Type of activity

Persons-months

Start month

End month

Block 1 Coordination for LEM : CALLENS (15)Seminar LEM (6)

42

WP0 Project management MGT 30 M01 M36WP1 Dissemination O 12 M01 M36Block 2 Seminar LEM (20) 40WP2 Review of the state of the art RTD 32 M01 M06WP3 Review of alternative theories RTD 8 M07 M12Block 3 Post Doc (s) LEM (24)

Seminar LEM (15)84

WP4 Development and validation of models RTD 32 M13 M33WP5 Data collection and database construction RTD 18 M04 M21WP6 Econometric estimation and analysis RTD 34 M07 M24Block 4 BOUGHATTAS (9) 12WP7 Policy impacts and analysis RTD 12 M28 M36

TotalSubtotal LEM

- 17889

- -

Note: MGT – Management; O – Other; RTD – Research.

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.




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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 planWork

packageStart

monthEnd

month1 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

WP0 Project management

M01 M36

WP1 Dissem.

M01 M36

WP2 Review of the state of the art

M01 M06

WP3 Review of alternative theories

M07 M12

WP4 Develop. and valid. of models

M13 M33

WP5 Data collection and database construction

M04 M21

WP6 Econometric estimation and analysis

M07 M24

WP7 Policy impacts and analysis

M28 M36



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Table 3.5 Deliverables listDelivery number WP number Nature Delivery

date0.1 Agreement 0 O M010.2 Project website 0 O M020.3 Management reports and activity plans 0 RTD M01-M361.1 Project presentation 1 O M021.2 Final plan for using and dissemination knowledge

1 RTD M04

1.3 Progress report with annual frequency 1 RTD M12, M24, M36

1.4 Final report 1 RTD M362.1 Review of state of the art in labour market flexibility and accommodation of adverse shocks

2 RTD M02

2.2 Review of state of the art in modelling labour market rigidities

2 RTD M04

2.3 Review of state of the art in models including intra-EU migration flows

2 RTD M06

2.4 Review of state of the art in estimation of labour market structural indicators

2 RTD M06

3.1 Review of models with learning expectations

3 RTD M12

3.2 Review of bounded rationality models 3 RTD M12

4.1 DSGE model augmented to include labour force migration

4 RTD M18

4.2 Substantiating the link between labour market and other markets

4 RTD M18

4.3 A set of impulse response functions reflecting the adjustment of labour market variables included in the model to various macroeconomic shocks

4 RTD M24

4.4 Simulation within a model with bounded rationality

4 RTD M33

4.5 Modelling framework for policy analysis 4 RTD M33

5.1 Time-series and cross-section data 5 RTD M09, M12, M15

5.2 Database to be used in the modelling framework

5 RTD M18, M21

6.1 Report on relevant characteristics of the EU labour markets

6 RTD M12

6.2 Report on estimating of the natural rate of unemployment

6 RTD M12




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6.3 Report on quantifying the influence of labour market frictions on the relationship between inflation and unemployment

6 RTD M18

6.4 Report on estimating the effects of unemployment on financial stability

6 RTD M18

6.5 Report on assessing the efficiency of public spending with unemployment benefits

6 RTD M24

6.6 Report on evaluating the vulnerability of labour market to external shocks

6 RTD M24

7.1 Report on analysing flexicurity of the NMS labour markets

7 RTD M31

7.2 Report on analysing the labour market capacity to achieve macroeconomic adjustment

7 RTD M31

7.3 Report on the efficacy of labour market reforms adopt in EU during financial and economic crisis

7 RTD M35

7.4 Synthesis report: implications for the new labour market policy instruments and policy advices that emerged from the analysis

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 long-

term evolutions; estimate the degree at which the labor market is vulnerable in external shocks.




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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

CareerProfessor, 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 60 th 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

ResponsabilitiesSeptember 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 2012Religions, 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.orgL’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.


http://www.revue-ddt.org/



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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 , 2011Dobre 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 Name of involved people

Project name, funding institution, grant allocated Start and end dates

ASE Dudian Monica 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

December, 2010 - March, 2013




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Programme Human Resources Development 2007-2013, project number POSDRU/89/1.5/S/56287, approx. 6000 Euro

ASE Dudian Monica 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.

January, 2009 - December, 2011

LEM Callens Stéphane(coordinator)

Sutra², financed by ANR 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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Addison J. si Teixera P., The economics of employment protection, Journal of Labor Research, vol. 24, p. 85-129,2003;

Afonso, A. și Furceri, D., Sectoral Business Cycle Synchronization in the European Union,HYPERLINK Management (ISEG), Technical University of Lisbon Working Paper No. 2007/02;

Arseneau, D.M. si Chugh, S.K., Competitive Search Equilibrium in a DSGE Model, Board of Governors of the Federal Reserve System, International Finance Discussion Papers N0. 929,2008;

Blanchard, O. si Gali J.,Real Wage Rigidities and the New Keynesian Model,Journal of Money Credit and Banking, February, 35-66,2007;

Blanchard O. si Diamond P., The Beveridge curve, Brookings Papers on Economic Activity 1, pag. 1–60, 1989;

Bobeică, G. și Bojeșteanu, E.,Where Do the Newest EU Member States Stand on the Road to Monetary Integration?International Trade and Finance Association Working Papers No. 4 ,2008;

Calmfors L., Wages and wage-bargaining institutions in the EMU, A survey of the issues, Institute for InternationalEconomic Studies, Seminar Series Paper, No. 690, Stockholm University,2001.

Cameron G., Muellbauer G., A Study In Structural Change: Relative Earnings In Wales Since The 1970s, Economics Series Working Papers 9961, University of Oxford, Department of Economics,2001;

Cameron, S., S. Chaudhuri & J. McLaren, Mobility costs and the dynamics of labor market adjustment to external shocks: Theory,Columbia University, Department of Economics;

Christoffel, K., Kuester, K. si Linzert T. Identifying the Role of Labor Markets for Monetary Policy in an estimated DSGE Mondel, European Central Bank Working Paper No. 635,2006;

Blanchard, O. si Clarida.J.,Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment, MIT Department of Economics Working Paper No. 06-22,2008;

Ciuca, V., Son, L., Pasnicu, D., Modelul românesc de flexisecuritate şi încadrarea lui în modelele europene existente, contract cercetare INCSMPS,2009;

Darvas, Z. si G. Vadas, A New Method for Combining Detrending Techniques with Application to Business Cycle Synchronization of the New EU Members, Corvinus University of Budapest Working Paper, (2004);

Dellas, H. and Tavlas, G.,Wage Rigidity and Monetary Union, Centre for Economic Policy Research Discussion Paper No. 3679,2002;

Dunlop J., Wage Determination Under Trade Unions, Mcmilan, 1944;

Forbes, K. si Rigobon R., Contagion, only Interdepence: Measuring Stock Market Comovement, Journal of Finance, 57, 2223-2261,2002;

Friedman, M., The role of monetary policy, American Economic Review Papers and Proceedings, 58(1): 1-17, 1968;

Friedman, M. ,The Case for Flexible Exchange Rates. Essays in Positive Economics, Chicago: University of Chicago Press,1953;

Galuscak, K. si Munich D.,Structural and Cyclical Unemployment: What Can We Derive from the Matching Function,2005;

Gertler, M. si Trigari A., Unemployment Dynamics with Staggered Nash Wage Bargaining, NBER Working Paper No. 12498,2006;

Gertler, M.,SalaM., si Trigari A., An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining,Journal of Money, Credit and Banking, Vol. 40 No.8, pag. 1713 – 1764,2008;

HM Treasury Staff ,UK membership of the single currency, An assessment of the five economic tests, – Capitolul 2 – Flexibility, 2003;


http://ideas.repec.org/s/oxf/wpaper.html

http://ideas.repec.org/p/oxf/wpaper/9961.html



Project FEELM

SCIENTIFIC DOCUMENT

Hughes H. si Viegi, N., Labour Market Institutions and Monetary Policy in EMU: Do Asymmetries Matter?, Paper presented at the International Workshop on EMU and Asymmetries in Labour Market, 29-30 September, Paris,2000;

Jackman R., si Savour S., Has Britain solved the regional problem? In: Gregg, Paul and Wadsworth, Jonathan, (eds.) The state of working Britain. Manchester University Press, Manchester. ISBN 0719056462, 1999;

Janssen, R, Flexi-Security and the ETUC, Etuc Reviw, Oviedo,2008;

Lavrac, V. Zumer,T., Accession of cee countries to EMU: nominal convergence, real convergence and optimum currency area criteria, Bank of Valleta Review, 2003;

Lewis, J., Hitting and hoping?: Meeting the exchange rate and inflation criteria during a period of nominal convergence, European Journal of Political Economy,2009;

Lewis G, Unionism and Relative Wages in the United States, Chicago: University of Chicago Press, 1963, pp:185-1963;

Modigliani, F. si Papademos L., Targets for monetary policy in the coming year, Brookings Paper on Economic Activity, 1: 14163,1975;

Nash J., The bargaining Problem, Econometrica, pag.155-162, 1950;

Phelps, E.S., Money, wage dynamics and labour market equilibrium, Journal of Political Economy, 76(4): 678-711,1968;

Moore, T. si Pentecost, E.J., Labour market flexibility and the sources of fluctuations in real and nominal wage rates

in euro-area accession countries: A structural VAR approach, Journal of Comparative Economics, 34(2) June 357276, 2006;

Pfister C., Flexibilite du marche du travail, Banque de la France, Direction de la Recherche, 2008;

Savva, C. S., Neanidis K., C. și Osborn, D. ,Business Cycle Synchronization of the Euro Area with the New and Negotiating Member Countries,

Scheremet, W.,On the Convergence of Wage Policy after EMU, Paper presented at the International Workshop on EMU and Asymmetries in Labor Market, 29-30 September, Paris,2000;

Swanson, E.T., Risk Aversion, the Labor Margin, and Asset Pricing in DSGE Models, Federal Reserve Bank of San Francisco Working Paper No. 26,2009;

Stiglitz, J.,Reflections on the natural rate hypothesis, Journal of Economic Perspectives, 11: 3-10, 1997;

Tangian, A., European flexicurity: concepts (operational definitions), methodology (monitoring instruments), and policies (consistent implementations), WSI Diskussionspapier 148, Düsseldorf: Hans-Böckler-Stiftung. http://www.boeckler.de/ pdf/p_wsi_diskp_148_e.pdf,2006;

Tangian, A. ,Monitoring flexicurity policies in the EU with dedicated composite indicators, WSI Diskussionspapier 137, Düsseldorf: Hans-Böckler-Stiftung.http://www.boeckler.de/pdf/p_wsi_diskp_137.pdf,2005;

Thomas A., The costs and benefits of various wage bargaining structures : An empirical explanation, International Monetary Fund, Washington,2001;

Wilthagen, T. si Tros F.,The concept of flexicurity: a new approach to regulating employment and labour markets, Transfer, 10 (2), 166-186,2004;

Karl, A., Horvath Thomas, Mahringer Helmut, (2011), “Why labour market performance differed across countries in the Recent Crisis”, EUROFRAME (European Forecasting Research Association for the Macro-Economy), http://www.euroframe.org/fileadmin/user_upload/euroframe/docs/2011/EUROF11_Aiginger_Horwath_Mahringer.pdf

Lafontaine, F and J. Sivadasan, Do Labor Market Rigidities Have Microeconomic Effects?

Evidence from Within the Firm, American Economic Journal: Applied Economics 2009, 1:2, 88–127

http://www.aeaweb.org/articles.php?doi=10.1257/app.1.2.88


http://www.euroframe.org/fileadmin/user_upload/euroframe/docs/2011/EUROF11_Aiginger_Horwath_Mahringer.pdf

http://www.euroframe.org/fileadmin/user_upload/euroframe/docs/2011/EUROF11_Aiginger_Horwath_Mahringer.pdf

http://www.boeckler.de/



Project FEELM

SCIENTIFIC DOCUMENT

Woodford, M, Convergence in Macroeconomics: Elements of the New Synthesis, American Economic Journal: Macroeconomics 2009, 1:1, 267–279 http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.267

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 French-Rumanian 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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