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



real wage and labour supply shocks are far more persistent in the high unemployment
regions than in the low unemployment regions.

Second, investment was the main driving force of the downward trend in unemploy-
ment during the boom period and the rise of unemployment during the recession years.
Furthermore, the increase in the high unemployment regions was more than double of that
in the low unemployment regions. This should be contrasted to the economic upturn of
1985-1991, where the decrease in the high unemployment rate regions was only 70% of the
decrease in the low unemployment regions. That is, in bad times the high unemployment
group is hit more severely than the low unemployment group, while in good times the
high unemployment group does not benefit as much as the low unemployment group.

Third, although the influence of oil prices on unemployment was substantial during
the boom period, it was negligible after 1991 when oil prices stabilised at relatively low
levels.

Finally, the role of benefits, taxes, and competitiveness in the evolution of the unem-
ployment rate is less important.

The policy implications that emerge from our analysis are that different policies should
be applied to the high and low unemployment groups of regions in order to reduce regional
unemployment disparities. This is in line with the recommendations made by Overman
and Puga (2002).

Also, the role of investment should be emphasized since we showed that this is a key
variable in the explanation of regional unemployment swings. This result indicates the
need for a debate on how the EU structural funds were spent in the high unempoyment
regions. De la Fuente (2003) provides an attempt towards this direction. In addition,
there should be an evaluation of the impact on the Spanish regional labour markets of
the progressive reduction in EU structural funds in the forthcoming years.

References

[1] Antolin, P. and O. Bover (1997):"Regional migration in Spain: the effect of personal
characteristics and of unemployment, wage and house price differentials using pooled
cross-sections".
Oxford Bulletin of Economics and Statistics, 59, 215-235.

[2] Attanasio O., and F. Padoa-Schioppa (1991):"Regional Inequalities, migration
and mismatch in Italy, 1960-86",
in Attanasio, O. and F. Padoa-Schioppa
(Eds):"Mismtach and Labour Mobility", Cambridge University Press, Cambridge.

[3] Baddeley M., Martin R. and Tyler P., (1998):"European regional unemployment
disparities: convergence or persistence?".
European Urban and Regional Studies, 5,
195-215.

[4] Baltagi, B. H. (1995): Econometric Analysis of Panel Data, New York: Wiley.

26



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