Regional Unemployment and Productivity in Europe and the Us

Abstract

The existence and persistence of large spatial disparities in unemployment within national economies is a central issue in regional economics. Previous empirical analyses have largely disregarded the role of fundamentals. On the contrary in this paper we explore the link between labour productivity, international trade and regional unemployment differentials.

We base our empirical analysis on the predictions of a simple General Oligopolistic Equilibrium efficiency-wage trade model. Using semiparametric regression methods, controlling for industry-mix and labour force participation, we give evidence of a nonlinear negative relationship between labour productivity and regional unemployment, in the cases of European regions. Instead, no significant relationships between these variables have been found for the United States.

Keywords: Productivity, regional unemployment, oligopoly, nonparametrics

JEL Classification: C14, D50, F12, F16, J41, L13, R10