Disparities In Economic Growth And Unemployment Across The European Regions: A Sectoral Perspective

The picture on disparities in productivity growth and in unemployment across European regions reveals the existence of a slow and not very systematic convergence of labor productivity toward a common level, and of an even more uncertain convergence of unemployment rates. This paper uses a unified framework to study both phenomena. We adopt a three-sector perspective (agriculture, industry and services) to assess whether sectoral dynamics helps explaining the observed heterogeneity in the growth and employment regional performances. The main theoretical hypotheses upon which our empirical investigation is based are obtained by models on the dual-economy (e.g. Mas Colell and Razin 1973), where predictions on how out-migration from agriculture can generate convergence are formulated; and by Baumol (1967), where the role of an expansion of services on aggregate growth is studied. Part of our evidence is based on the use of cluster analysis to identify subsets of regions homogeneous in terms of variables such as sectoral dynamics, labor market dynamics, and overall productivity growth. The results are largely consistent with the adopted theoretical framework. Regions that start from a low agricultural share are the richest and grow relatively slowly; regions that start from very high agricultural shares are characterized by a fast decline of that share and by higher than average growth rates; they also show a limited decline in their employment rates. Regions specialized in service activities show a particularly slow rate of productivity growth and a rising employment rate. More generally, we find a large body of evidence suggesting that convergence in aggregate productivity is strongly associated with out-migration from agriculture, and that the magnitude of the impact of the latter on aggregate regional growth depends significantly on which sector absorbs the migrating workers.