Regional labor markets, unemployment and inequality in Europe

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Garcilazo Corredera, José Enrique

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‘Regional Labor Markets, Unemployment and Inequality in Europe’, studies the problem of unemployment in the European Union. The methodology departs from the labor market flexibility hypothesis in distinct ways. This hypothesis attributes a series of rigidities to the European labor market as the inducers of unemployment and prescribes a series of labor market reforms to make labor markets more flexible. Studies supporting the labor market hypothesis are typically conducted at the national level. The dissertation changes the unit of analysis to the regional level. It also incorporates the relationship between pay-inequality and unemployment into the analysis. With these changes, forces at the regional, national and continental level affecting the unemployment rate are incorporated in the analysis. The dissertation is organized in three main sections. The first section provides a general overview of the dissertation and a literature review on existing studies of European unemployment with emphasis on the flexible labor market hypothesis. The second section computes the variable ‘pay inequality’ at the regional level from payroll data. This section also develops the regional model of unemployment and tests the model with an econometric unbalance panel that permits the separation of regional, national, and continental influences on European unemployment from 19842000. In the third section, three chapters test various implications of the regional model of unemployment. The first tests the relationship between employment growth and inequality for 14 European countries from 1995-2000. The second forecasts the rates of unemployment for five Polish regions in the year 2014 using the main regional model of unemployment and a mahalanobis matching procedure. This chapter discusses the policy implications under various simulated scenarios for reducing rates of unemployment in the five Polish regions. The third studies the case of Spain, and the extreme fluctuations in its unemployment rate during the past 30 years using the results of the main model that apply to this country and a hypothesis relating currency devaluations to rates of unemployment. The final chapter collects the overall finding and provides a series of policy recommendations for Europe and its problem of unemployment.