Page 32 - IDEA Study 3 2018 Low skilled

5). This suggests that while higher wages motivate the low-skilled to enter the labor market, there are some constraints on the demand side, i.e. the positive relationship between the unemployment rate and the wage level suggests that employers are less willing to employ the low-skilled in regions where they have higher wages. Figure 5. Regional Variation in Wages and Unemployment/Inactivity of the Low-skilled inacr = .61477 - 9.2e-06 med_2016 R2 = 8.4% unemplr = .15201 - 2.9e-06 med_2016 R2 = 1.4% Olomoucky Moravskoslezsky Stredocesky Ustecky Jihomoravsky Vysocina Kralovehradecky Ustecky Karlovarsky Jihocesky Zlinsky Pardubicky Moravskoslezsky Liberecky Stredocesky Plzensky Liberecky Kralovehradecky Plzensky Pardubicky Jihocesky Jihomoravsky Vysocina Praha Karlovarsky Praha Zlinsky Olomoucky 16000 17000 18000 19000 20000 21000 median wage low-skilled n = 14 RMSE = .050657 16000 17000 18000 19000 20000 21000 median wage low-skilled n = 14 RMSE = .0395062 Source: AEIS data and LFS data 2014-2016, own calculation. Incentives matter: The low-skilled are more likely to be inactive in regions with higher effective taxation. Finally, the role of work incentives is supported by direct evidence from the regional distribution of the participation tax rate of non-workers and its relationship with the labor market outcomes of the low-skilled. The participation tax rate of the non-working low-skilled is positively correlated with their inactivity rate (left panel of Figure 6), suggesting that the low-skilled in regions with lower work incentives (as reflected by the high PTR of non-workers) are more likely to stay out of the labor market. There is also a negative relationship between the participation tax rate and the unemployment rate (right panel of Figure 6), but it is much less strong and mostly 30 .35 .4 .45 .5 .55 unemployment rate of low-skilled .05 .1 .15 .2