Vincent Fromentin
Fonction
Maître de Conférence
Organisation
Université de Lorraine
Lien université
Cross-border workers and financial instability: a frequency domain causality analysis applied to the Luxembourg financial centre
Cross-border workers and financial instability: a frequency domain causality analysis applied to the Luxembourg financial centre
Border Region
Grande Région Saar-Lor-Lux
Language(s)
Anglais
Main Category
Introduction
This article aims to examine the causal relationship between workers (cross-border and resident workers) and financial instability in the Luxembourg financial centre, using a Granger causality test in the frequency domain. Data show that cross-border workers are more sensitive to financial shocks than resident workers.
Summary
In this article, we concentrate on the sensitivity of the labour market to financial crises in Luxembourg. Luxembourg is a global financial centre specialising in banking, investment funds and insurance. This specialisation partly conditions the labour market in Luxembourg. Specialisation in financial activities requires a highly qualified workforce. Luxembourg is a small country that suffers from labour shortages and needs migrant workers. Against this background, we will show that cross-border workers are at greater risk of losing their jobs than native workers.
Content
The main contribution of this article is that it proposes an original econometric study testing frequency domain causality between cross-border workers and financial shocks in Luxembourg. The article evaluates the differential impact of short-term and long-terms shocks on cross-border workers using spectral analysis.
Using monthly data from 1996M01 to 2017M09 (261 observations), causality tests between the share price index and cross-border and resident workers in Luxembourg are only significant at low frequency (periodicity greater than 5 months). The Luxembourg job market resists stock market crashes in the short term: financial fluctuations only affect cross-border workers after five months. The sensitivity of the Luxembourg labour market also differs according to the financial shock (European and American stock market).
Conclusions
The aim of this study was to look at the causal relationship between share prices and a segmented labour market in an international financial centre. Luxembourg is a relevant case due to the extreme specialisation in the banking and finance sector and due to the high number of cross-border workers. Our main findings confirm the differential impact of a financial shock on cross-border and resident workers and the existence of a non-significant impact in the short term and a significant impact in the long term. We also noted that that the causal relationship was different following a European or an American stock market crash.
Lead
Vincent Fromentin, Yamina Tadjeddine
Contributions
Universités de Lorraine, Maison des Sciences de l’Homme Lorraine.
Contact Person(s)
Date of creation
2020
Publié dans
Applied Economics Letters, Volume 27, 2020 - Issue 4