A Nonparametric Analysis of Regional Unemployment Dynamics in Britain

Abstract

This paper estimates the probability distribution of relative county unemployment in Britain for the years 1981-1995. We find that the distribution is unimodal in all years, with a falling variance between 1989 and 1994. We use bootstrap methods to determine critical values for the two tails of the distribution, and analyze intra-distribution dynamics. An unemployment shock is defined as a move between a tail and the centre of the distribution (and vice versa). The persistence of a shock is defined by the number of time periods a country stays in a state before switching to another state. We find that positive shocks (those that reduce unemployment) tend to persist longer than negative ones. We also calculate transition probabilities and find that the probability of leaving any given state is very low, and is lower for the state of high relative unemployment than for the state of low relative unemployment.