Figure 2.2 Population movements contribute little to economic convergence

Box 2.6 Description of the variables used in the heatmap

• Convergence: Indicates whether the average growth rate between 2004 and 2014 was above, close to or below the growth rate implied by the OLS estimation of β-convergence (Annex 6). • Output half-life: Number of quarters required for an output shock to reduce to half its initial value. • Output volatility: Standard deviation of the business cycle component of output log deviation of GDP from its trend. • Unemployment half-life: Number of quarters required for a shock to unemployment to reduce to half its initial value. • Unemployment volatility: Standard deviation of the unemployment rate. • Income duration: Number of years required for bottom 20 household income to reach it’s turning point after the Global Financial Crisis. • Income depth: Maximum drop of bottom 20 household income after the Global Financial Crisis.

Note: For Germany and Croatia no information on income duration and depth is available.

• Business cycle synchronicity: Correlation coefficient of a country’s business cycle with the eurozone business cycle.

Low income protection: • Income inequality: Ratio of household income at the 20th to the income at the 80th percentile of the income distribution. • Pass-through: Response of the incomes of poorer households to periods of contraction. A response greater than one implies that poorer households see their incomes contract more than the average household during these periods. Estimates cover the period of 2004–2016 using EU-SILC data. • Transfer/tax system efficiency: Percentage reduction or increase in poverty as a result of the fiscal system. Estimates are calculated using EUROMOD and the EU-SILC, for the 2007 income year. Poverty is measured using national at-risk-of-poverty measures. • Social protection targeting: percent of social assistance expenditure going to the bottom 40 percent in 2008, using EU-SILC data. For more detail on the construction of this indicator, see World Bank (2015).

Note: For Germany, Poland and Sweden no information on the variable “pass-through” is available, for Germany and Croatia no information on the variable “social protection targeting” is available.

Labor market conditions: • ALMP/PLMP—Expenditure on active/passive labor market programs (as percentage of GDP). • CBC: Collective bargaining coverage (in 2008). • EPL: Value of the OECD’s employment protection legislation indicator for permanent contracts. • Part-time work: percent of employers conducting part-time work. From the EU Labor Force Survey. • Firing costs: Weighted average of notice and severance period for redundancy dismissal (in weeks) from the World Bank’s Ease of Doing Business using an average dismissal across tenure periods. • Wage flexibility: Response coefficient of wage to unemployment.

Note: For Bulgaria and Romania, no information on the variable “EPL” is available, for Croatia and Lithuania values for 2014 or 2015 were used (rather than period averages).

Private sector conditions: • Ease of doing business: World Bank’s Ease of Doing Business score (aggregate measure). • Product market regulation: Scores of the OECD’s “Barrier to Entrepreneurship” indicator. • Enforcing contracts: Scores of the World Bank’s “Enforcing Contracts” indicator. • Insolvency procedures: Scores of the World Bank’s “Resolving Insolvency” indicator.

Note: For Croatia, no information on the variable “Ease of Doing Business” was used in the estimations.

Trust in institutions: • Aggregate index constructed from replies to Eurobarometer’s survey questions assessing the trust in a country’s institutions.