Unemployment volatility and regional specialization in the European Union

Abstract

This paper examines the link between unemployment volatility and the sectoral composition of economic activity in the regions of the European Union over the period 1980-2004. To that end, I use different spatial econometric techniques, which allow one to investigate the role played in this context by spatial effects and geographical spillovers. The results show that unemployment volatility is positively related to regional specialization in the European Union. This finding is in fact robust to the inclusion in the analysis of various additional explanatory variables, such us the level of total employment, employment density, the ratio of active population to total population, the economic growth rate and the amount of structural change experienced by each region. Additionally, it should be noted that the observed correlation between unemployment variability and the sectoral composition of economic activity does not depend on the use in the analysis of absolute or relative specialization measures.