This work investigates the time series properties of the unemployment rate of the Spanish regions over the period 1976-2011. For that purpose, the authors employ the PANIC procedures of Bai and Ng (2004), which allows to decompose the observed unemployment rate series into common factor and idiosyncratic components. This enables the authors to identify the exact source behind the hysteretic behaviour found in Spanish regional unemployment. Overall, the analysis with three different proxies for the excess of labour supply renders strong support for the hysteresis hypothesis, which appears to be caused by a common stochastic trend driving all the regional unemployment series. In the second part of the analysis the authors try to determine the macroeconomic and institutional factors that are able to explain the time series evolution of the common factor, and in turn help us shed light on the ultimate sources of hysteresis. The reader shall see how the variables that the empirical analysis emphasises as relevant closely fit into the main causes of the Spanish unemployment behaviour. Finally, some policy considerations drawn from the results are presented.

On both theoretical and empirical grounds, this paper provides evidence that refutes the natural rate of unemployment (NRU) hypothesis as an explanation of the evolution of regional disparities in the unemployment rate. We first present our analytical framework, which follows the chain reaction theory (CRT) of unemployment and argues that (i) a system of interactive labour market equations, rather than a single-equation unemployment rate model, is better equipped to accommodate unemployment dynamics, and (ii) due to the interplay of frictions and growth in labour markets, the NRU ceases to be an attractor of the unemployment rate time path. We then provide evidence that the Spanish economy is characterised by large and persistent disparities in the regional unemployment rates. Through standard kernel density tecnhiques, we demonstrate the existence of marked differences between two groups of high and low unemployment regions that remain stable in their composition through time. Finally, we review our empirical labour market model for each group of regions and evaluate the corresponding natural rates. Our findings confirm that the evolution of regional disparities cannot be attributed to disparities in the natural rates, given that these, although different, do not act as an attractor of unemployment. Thus, the NRUs offer little help in the formulation of labour market policies. -- Regional unemployment ; Disparities ; Kernel ; Natural rate ; Frictional growth

This paper studies the main factors that explain the low regional mobility in Spain, with a view to identifying policy options at the regional and central level to promote labor mobility. The empirical analysis finds that house prices, labor market conditions, and the pervasiveness of labor market duality at the regional level are the main determinants for Spain’s regional mobility, while labor market institutions and policies play an important role at the national level. Policies that facilitate wage setting flexibility and reduce labor market duality could help enhance the functioning of the labor market, thereby promoting labor mobility. There may be also room for policies to incentivize people to move and provide support through targeted active labor market policies.

"This paper aims to shed light in the dynamics of Spanish regional unemployment rates and determine the driving forces of their disparities. The Spanish economy has one of the highest unemployment rates in the EU and is characterised by severe regional disparities. We apply the chain reaction theory of unemployment according to which the evolution of unemployment is driven by the interplay of lagged adjustment processes and the spillover effects within the labour market system. Our model includes nationwide as well as region-specific variables, and takes into account the limited labour and firm mobility in Spain. We show that the degree of labour market flexibility differs between high and low unemployment regions, and find that investment has a major influence on the unemployment trajectory. In addition, we find that in bad times high unemployment regions are hit more severely than low unemployment regions, while in good times high unemployment regions do not benefit as much as low unemployment regions"--Forschungsinstitut zur Zukunft der Arbeit web site.