The NRU and the Evolution of Regional Disparities in Spanish Unemployment
AbstractOn both theoretical and empirical grounds, this paper provides evidence that refutes the natural rate of unemployment (NRU) hypothesis as an explanation of the evolution of regional disparities in the unemployment rate. We first present our analytical framework, which follows the chain reaction theory (CRT) of unemployment and argues that (i) a system of interactive labour market equations, rather than a single-equation unemployment rate model, is better equipped to accommodate unemployment dynamics, and (ii) due to the interplay of frictions and growth in labour markets, the NRU ceases to be an attractor of the unemployment rate time path. We then provide evidence that the Spanish economy is characterised by large and persistent disparities in the regional unemployment rates. Through standard kernel density tecnhiques, we demonstrate the existence of marked differences between two groups of high and low unemployment regions that remain stable in their composition through time. Finally, we review our empirical labour market model for each group of regions and evaluate the corresponding natural rates. Our findings confirm that the evolution of regional disparities cannot be attributed to disparities in the natural rates, given that these, although different, do not act as an attractor of unemployment. Thus, the NRUs offer little help in the formulation of labour market policies.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 681.
Date of creation: Jul 2011
Date of revision:
Regional unemployment; Disparities; Kernel; Natural rate; Frictional growth;
Find related papers by JEL classification:
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-02 (All new papers)
- NEP-EUR-2011-08-02 (Microeconomic European Issues)
- NEP-GEO-2011-08-02 (Economic Geography)
- NEP-LAB-2011-08-02 (Labour Economics)
- NEP-URE-2011-08-02 (Urban & Real Estate Economics)
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