An Empirical Analysis of Natural and Cyclical Unemployment at the Provincial Level in Spain
An Empirical Analysis of Natural and Cyclical Unemployment at the Provincial Level in Spain
Publication: Applied Spatial Analysis and Policy
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Authors:
Jaime Cuéllar-Martín
Ángel L. Martín-Román
Alfonso Moral
Differences in regional unemployment rates, as well as their formation mechanism and persistence, have given rise to many papers in recent decades. The present work contributes to this strand of literature from two different perspectives. In the first part of our work, we follow the methodological proposal put forward by Hofler and Murphy (1989) and Aysun et al. (2014). We use a stochastic cost frontier to break down actual Spanish provincial unemployment (NUTS-3) into two different estimation components: the first associated with aggregate supply side factors, and the other more related to aggregate demand side factors. The second part of our research analyses the existence of spatial dependence patterns among Spanish provinces in actual unemployment and in the two above-mentioned components. The decomposition carried out in the first part of our research tells us what margin policymakers have when dealing with unemployment reductions by means of aggregate supply and aggregate demand policies. Finally, spatial analysis of unemployment rates in Spanish provinces may also have significant implications from the standpoint of economic policy since we find common formation patterns or clusters of unemployment.
Notes
Filiztekin (2009) reports a strong spatial dependence of regional unemployment rates in Turkey. The author finds that the factors which most contribute to shaping the distribution of unemployment are the growth in employment in 1980 and human capital in the year 2000. Basile et al. (2009) also underpin the role played by the imbalance between labour supply and demand as well as the Bbrain drain^ which occurs through migration.
Factors Generating Spatial Dependence in Unemployment
Peer Effect
BSocial Network Peer Effect^
The employment situation of the members of the Bsocial network^ which a person forms part of affects their likelihood of finding a job, positively in the case of areas of Blow^ unemployment and negatively in areas of Bhigh^ unemployment (Topa 2001; Conley and Topa 2002; Calvo-Armengol and Jackson 2004; Cingano and Rosolia 2012).
BSocial Cost Peer Effect^
In areas of Blow^ unemployment, the psychological and social cost for those who are unemployed is high since most of their neighbours are working. This situation drives unemployed persons to engage in a more intense job search (Hedström et al. 2003), thereby enhancing their chances of finding work. In contrast, in areas of Bhigh^ unemployment, the psychological and social cost for those who are unemployed is lower. This is because the reference group (neighbours) are in a similar situation (Hedström et al. 2003; Clark 2003), which discourages a more intense job search.