On Regional Unemployment: An Empirical Examination of the Determinants of Geographical Differentials in the UK

Abstract

This paper considers the determinants of regional disparities in unemployment rates for the UK regions at NUTS-II level. We use a mixture panel data model to describe unemployment differentials between heterogeneous groups of regions. The results indicate the existence of two clusters of regions in the UK economy, characterised by high and low unemployment rates respectively. A major source of heterogeneity seems to be caused by the varying effect (between the two clusters) of the share of employment in the services sector, and we trace its origin to the fact that the "high unemployment" cluster is characterised by a higher degree of urbanization.

Keywords: distribution dynamics, regional labour markets, unemployment differentials

JEL Classification: C23, J08, J64, R12, R23