Unemployment clusters across Europe's regions and countries
AbstractHigh unemployment and regional inequalities are major concerns for European policy-makers, but so far connections between policies dealing with unemployment and regional inequalities have been few and weak. We think that this should change. This paper documents a regional and transnational dimension to unemployment -- i.e., geographical unemployment clusters that do not respect national boundaries. Since the mid 1980s, regions with high or low initial unemployment rates saw little change, while regions with intermediate unemployment moved towards extreme values. During this polarization, nearby regions tended to share similar outcomes due, we argue, to spatially related changes in labour demand. These spatially correlated demand shifts were due in part to initial clustering of low-skilled regions and badly performing industries, but a significant neighbour effect remains even after controlling for these, and the effect is as strong within as it is between nations. We believe this reflects agglomeration effects of economic integration. The new economic geography literature shows how integration fosters employment clusters that need not respect national borders. If regional labour forces do not adjust, regional unemployment polarization with neighbour effects can result. To account for these 'neighbour effects' a cross-regional and transnational dimension should be added to national anti-unemployment policies. Nations should consider policies that encourage regional wage setting, and short distance mobility, and the EU should consider including transnational considerations in its regional policy, since neighbour effects on unemployment mean that an anti-unemployment policy paid for by one region will benefit neighbouring regions. Since local politicians gain no votes or tax revenues from these 'spillovers', they are likely to underestimate the true benefit of the policy and thus tend to undertake too little of it.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number dpuga-99-03.
Length: 33 pages
Date of creation: 11 Jul 1999
Date of revision:
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European regional unemployment; polarisation;
Other versions of this item:
- Henry G. Overman & Diego Puga, 2002. "Unemployment clusters across Europe's regions and countries," Economic Policy, CEPR & CES & MSH, vol. 17(34), pages 115-148, 04.
- Henry Overman & Diego Puga, 1999. "Unemployment Clusters Across European Regions and Countries," CEP Discussion Papers dp0434, Centre for Economic Performance, LSE.
- Overman, Henry G. & Puga, Diego, 1999. "Unemployment Clusters Across European Regions and Countries," CEPR Discussion Papers 2255, C.E.P.R. Discussion Papers.
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- F15 - International Economics - - Trade - - - Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-30 (All new papers)
- NEP-LAB-2000-05-30 (Labour Economics)
- NEP-LTV-2000-05-30 (Unemployment, Inequality & Poverty)
- NEP-PBE-2000-05-30 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joan-Maria Esteban & Debraj Ray, 1991.
"On the Measurement of Polarization,"
Boston University - Institute for Economic Development
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- Esteban, J.M. & Ray, D., 1992. "On the Measurement of Polarization," UFAE and IAE Working Papers 171.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991.
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- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
- Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
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