Employment, unemployment, participation: A regional study

Abstract

Despite having a GDP growth rate above the EU-15 average, labor market conditions in some Central and Eastern European countries (CEECs) remain problematic. In particular, unemployment rates have been slow to approach the European average, and the labor-force participation rate remains below European standards. This non-employment is all the more problematic given that regional heterogeneities in the EU have been increasing over time. We use the approach of Blanchard and Katz [1992] in order to understand how the unemployment rate and the participation rate respond, at the regional level, when an employment shock occurs. We find that across the EU-28 there is an effective labor supply adjustment, with a short-run and temporary response of the unemployment and participation rates. We find no significant differences between the EU-15 and CEE regions and conclude that labor market conditions are converging within the EU as a whole. However, with respect to the overall employment structure, we highlight the role of the sectoral reallocation of labor in increasing labor market flexibility. Finally, we highlight the higher sensitivity of women’s participation to employment shocks.