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Labour Market Flexibility and Regional Unemployment Rate Dynamics: Spain 1980-1995

  • Bande, Roberto

    ()

    (University of Santiago de Compostela, Spain)

  • Karanassou, Marika

    ()

    (Queen Mary, University of London)

This paper aims to shed light in the dynamics of Spanish regional unemployment rates and determine the driving forces of their disparities. The Spanish economy has one of the highest unemployment rates in the EU and is characterised by severe regional disparities. We apply the chain reaction theory of unemployment according to which the evolution of unemployment is driven by the interplay of lagged adjustment processes and the spillover effects within the labour market system. Our model includes nationwide as well as region-specific variables, and takes into account the limited labour and firm mobility in Spain. We show that the degree of labour market flexibility differs between high and low unemployment regions, and find that investment has a major influence on the unemployment trajectory. In addition, we find that in bad times high unemployment regions are hit more severely than low unemployment regions, while in good times high unemployment regions do not benefit as much as low unemployment regions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2593.

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Length: 35 pages
Date of creation: Jan 2007
Date of revision:
Publication status: published in: Papers in Regional Science, 2009, 88(1), 181-207
Handle: RePEc:iza:izadps:dp2593
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