Differences in State Unemployment Rates: The Role of Labor and Product Market Structural Shifts

Differences in regional unemployment rates are often used to describe regional economic inequality. This paper asks whether changes in regional unemployment differences in West Germany are persistent over time. Understanding the persistency of regional unemployment differences helps us to assess how effective regional policy can be. While univariate tests suggest that changes in regional unemployment differences are persistent in West Germany, more powerful panel tests lend some support to the hypothesis that regional unemployment rates converge. However, these tests reveal a moderate speed of convergence at best. Because there is a structural break following the second oil crisis, we also use tests that allow for such a break. This provides evidence for both convergence and quick adjustment to an equilibrium distribution of regional unemployment rates that is, however, subject to a structural break.

This paper examines the time series properties of state and national unemployment rates. Based upon unit root, variance ratio, and cointegration tests, as well as Granger-causality and error-correction model results, several important conclusions can be made. First, forecasting models that include only levels of unemployment rates may produce spurious regression results. Second, in the vast majority of cases, there is no long run co-movement between the aggregate US unemployment rate and individual state unemployment rates. Third, models that are specified in first-differences generally yield reliable insights into state-national unemployment relationships.

Abstract. This paper applies the Bai-Perron method to identify longer-run structural breaks in Canadian regional unemployment rate series in order to estimate natural rates of unemployment for Canada and its regions. The longest samples (Canada, Quebec, Ontario, British Columbia, the Maritimes, and the Prairie region) span the 1946-2011 period while the shortest samples, covering smaller provinces, are for 1966-2011. In all cases the technique reveals significant breaks. On the longer series a jump upward of 1.6%-3.2% is found in the mid-1950s. A second, and larger, increase occurs in the mid-1970s in all but the two western-most provinces and the Prairie region. Further increases are seen in the early 1980s in all provinces west of Ontario as well as in the Maritime region and Nova Scotia. Declines in natural rate estimates are found for several provinces and Canada as a whole in the mid-to-late 1990s.1. IntroductionCanadian regional unemployment rates varied considerably over the period 1946-2011. Some of the variation, indeed the sharpest changes, are undoubtedly due to the business cycle. However, much of it may be accounted for by changes in the level of longer-run equilibrium unemployment rates around which the actual unemployment rate fluctuates; in other words, it is accounted for by changes in the natural rate of unemployment or NAIRU.1 These long-run natural rates are of some interest as indicators of the efficiency of individual regional labor markets and as determinants of regional wellbeing. The complex interplay between these regional NAIRUs and interregional migration is also of much interest. The level of the long-run regional unemployment rate may help determine long-run interregional migration patterns or the business locations of firms. Conversely, these same long-run unemployment rates will in part be determined by interregional labour mobility and its long-run determinants.This paper applies the Bai-Perron method to identify longer-run structural breaks in Canadian regional unemployment rate series in order to estimate natural rates of unemployment for Canada and its regions. The method is described after discussions of alternative approaches and data.2. Measuring the natural rate: Alternative approachesOne branch of the empirical natural rate literature hearkens back to Friedman's (1968) view of a natural rate of unemployment determined by various labor market frictions or imperfections. This imperfections approach estimates unemployment rate equations with proxies for the imperfections and a cyclical measure as control variables. Nickell, Nunziata, and Ochel (2005) is a recent example that generates estimates for Canada as a whole and other OECD countries. Canadian examples which use this approach to generate regional natural rate estimates include Riddell (1980), Miller (1987), Burns (1990), and Johnson and Kneebone (1991). Note that regional context factors that discourage interregional labor mobility will raise regional natural rates. See Cebula and Alexander (2006) for a recent study of the determinants of interregional mobility and Deller (2009) for an examination of regional equilibrium unemployment rates using a wage curve model.An alternative approach infers the value of the natural rate or NAIRU from behavior of a Phillips curve relationship. Examples of this approach include Gordon (1997), Ball and Mankiw (2002), and Ball (2009). These studies use a Hodrick-Prescott filter to separate the effect of the Phillips curve error term from the NAIRU. Laubach (2001) adopts another common approach that starts with a Phillips Curve relationship and then uses a Kalman filter to infer behaviour of the unobserved NAIRU.2 Both the imperfections approach and the Ball-Mankiw Phillips Curve method give natural rate estimates that show considerable variability over time. Indeed, they often resemble the actual rate series with the shorter-term fluctuations smoothed out. …

natural rate is an abstraction; like faith, it is seen by its works. can only say if bank policy succeeds in stabilizing prices, bank rate must have been brought in line with natural rate, but if it does not, it must not have been. (1) THE CONVENTIONAL PARADIGM for conduct of monetary policy calls for monetary authority to attain its objectives of a low and stable rate of inflation and full employment by adjusting its short-term interest rate instrument--in United States, federal funds rate--in response to economic developments. In principle, when aggregate demand and employment fall short of economy's natural levels of output and employment, or when other deflationary concerns appear on horizon, central bank should ease monetary policy by bringing real interest rates below economy's natural rate of interest for some Conversely, central bank should respond to inflationary concerns by adjusting interest rates upward so as to bring real interest rates above natural rate. In this setting, natural rate of unemployment is unemployment rate consistent with stable inflation; natural rate of interest is real interest rate consistent with unemployment being at its natural rate, and therefore with stable inflation. (2) In carrying out this strategy in practice, policymaker would ideally have accurate, quantitative, contemporaneous readings of natural rate of interest and natural rate of unemployment. Under those circumstances, economic stabilization policy would be relatively straightforward. However, an important difficulty complicates policymaking in practice and may limit scope for stabilization policy is policymakers do not know values of these natural rates in real time, is, when they make policy decisions. Indeed, even in hindsight there is considerable uncertainty regarding natural rates of unemployment and interest, and ambiguity about how best to model and estimate natural rates. Milton Friedman, arguing against natural rate-based policies in his presidential address to American Economic Association, posited One problem is [the policymaker] cannot know what `natural' rate is. Unfortunately, we have as yet devised no method to estimate accurately and readily natural rate of either interest or unemployment. And `natural' rate will itself change from time to time. (3) Friedman's comments echo those made decades earlier by John H. Williams and by Gustav Cassel, who wrote of natural rate of interest: The bank cannot know at a certain moment what is equilibrium rate of interest of capital market. (4) Even earlier, Knut Wicksell stressed the natural rate is not fixed or unalterable in magnitude. (5) Recent research using modern statistical techniques to estimate natural rates of unemployment, output, and interest indicates this problem is no less relevant today than it was 35, 75, or 105 years ago. These measurement problems appear particularly acute in presence of structural change, when natural rates may vary unpredictably, subjecting estimates to increased uncertainty. Douglas Staiger, James Stock, and Mark Watson document estimates of a time-varying natural rate of unemployment are very imprecise. (6) Orphanides and Simon van Norden show estimates of related concept of natural rate of output (that is, potential output) are likewise plagued by imprecision. (7) Similarly, Thomas Laubach and John C. Williams document great degree of uncertainty regarding estimates of natural rate of interest. (8) These difficulties have led some observers to discount usefulness of natural rate estimates for policymaking. William Brainard and George Perry conclude that conventional estimates from a NAIRU [nonaccelerating-inflation rate of unemployment] model do not identify full employment range with a degree of accuracy is useful to policymaking. …

This article evaluates the effect of human capital investment—for example, expenditures on education, training, and employment—on regional unemployment rates in the United States. State-level unemployment rates are estimated using the spatial lag fixed effects model with spatial correlation of regional unemployment rates for 1990 and 2000. The results show that unemployment rates can be decreased by a policy of state-level human capital investment. A $100 per capita human capital investment in a state is expected to decrease the unemployment rate by 0.63 percent. Human capital investment has a negative impact on a state's unemployment as long as the yearly average state net migration rate is greater than −1.6 percent. A maximum of 1.6 percent of a state's population can out-migrate on average in a year for human capital expenditures to be associated with a decrease in the state's unemployment rate. If a state's net migration rate is less than −1.6 percent of its population, human capital expenditures have a positive effect on unemployment.

PARTRIDGE M. D. and RICKMAN D. S. (1997) The dispersion of US state unemployment rates: the role of market and nonmarket equilibrium factors, Reg. Studies 31, 593‐607. European nations, particularly the UK, have been observed to have persistent dispersion in regional unemployment rates. The dispersion is often hypothesized to be caused by centralized collective bargaining and government policies that limit regional labour market adjustments. Although the US labour market is considered more exible, possessing higher rates of labour mobility and less government mandates, there also is persistent dispersion in US state unemployment rates. This paper investigates the factors that underlie the persistent dispersion in US state unemployment rates. The factors examined include amenities, crime, education, home ownership and residency patterns, industry composition and international migration. PARTRIDGE M. D. et RICKMAN D. S. (1997) La dispersion des taux de chômage aux Etats-Unis sur le plan des états: l'importance des facteurs au sein et en dehors du marché, Reg. Studies 31, 593-607. On a remarqué que la dispersion des taux de chômage régionaux aux pays d'Europe, et notamment au Royaume-Uni, persiste. On laisse souvent supposer que la dispersion remonte aux négociations centralisées entre les partenaires sociaux et aux politiques gouvernementales qui limitent la capacité d'adaptation des marchés du travail régionaux. Bien que le marché du travail aux EtatsUnis soit considéré plus souple, caractérisé par des taux de mobilité plus élevés et par des mandats gouvernementaux moins nombreux, il y a aussi une dispersion persistente des taux de chômage aux Etats-Unis sur le plan des états. Cet article cherche à examiner les facteurs qui sous-tendent la dispersion persistente des taux de chômage aux Etats-Unis sur le plan des états, y compris l'équipement, le crime, l'éducation, la distribution des propriétaires et des lieux de résidence, la structure industrielle et la migration internationale. PARTRIDGE M. D. und RICKMAN D. S. (1997) Die Streuung staatenspezifischer Erwerbslosigkeit in den Vereinigten Staaten Amerikas: die Rolle der vom Markt bestimmten und nicht-marktbestimmten Gleichgewichtsfaktoren, Reg. Studies 31, 593-607. Europäische Staaten, besonders das Vereinigte Königreich von Großbritannien, weisen anhaltende Streuung regionaler Erwerbslosigkeitsraten auf. Es ist oft die Hypothese aufgestellt worden, daß die Streuung durch zentral gesteuerte Tarifverhandlungen und eine Regierungspolitik verursacht wird, die regionale Arbeitsmarktanpassung einschränken. Obschon der Arbeitsmarkt in den Vereinigten Staaten für exibler gehalten wird, höhere Raten der Mobilität von Arbeitskräften und weniger Regierungsverfügungen aufweist, gibt es auch in den Vereinigten Staaten hartnäckige Streuung bei den Erwerbslosenraten. Diesbezüglich untersuchte Faktoren schließen zur Verfügung stehende Annehmlichkeiten, Verbrechen, Bildungswesen, Hausbesitz und Anwohnermuster, Zusammensetzung der Industrie und internationale Wanderung ein.

Estimates of the natural rate of unemployment are important in many macroeconomic models used by economists and policy advisors. This paper shows how such estimates might benefit from closer attention to regional developments. Regional business cycles do not move in lockstep and greater dispersion among regions can affect estimates of the natural rate of unemployment. There is microeconomic evidence that employers are more reluctant to cut wages than they are to raise them. Accordingly, this means that the relationship between wage inflation and vacancies is convex: an increase in vacancies raises wage inflation at an increasing rate. Our empirical results are consistent with this and indicate that if all else had remained constant, the reduction in the dispersion of regional unemployment rates between 1982 and 2000 would have meant a two-percentage point drop in the natural rate of aggregate unemployment.

In this paper we examine the nature of disparities in regional (state) unemployment rates in Australia over the period 1978-99 and their relationship to the national unemployment rate. Using co-integration analysis, we find that there is a negative relationship between the two implying that, as the national unemployment rate falls, micro and/or differentiated labour market policies need to bite harder (and affect proportionately more people) if equity in unemployment across regions is to be maintained. We also find that the trade-off between dispersion and unemployment has become steeper in the period following significant deregulation of the Australian economy in the early 1980s. It would appear likely that this reflects an increase in differences in the natural rate of unemployment between the regions since that time. Cet article cherche à examiner l'essentiel des écarts entre les taux de chômage régional en Australie (à savoir au niveau des états) de 1978 à 1999 et son rapport au taux de chômage moyen. A partir d'une analyse cointégrée, il s'avère que les deux variables ne sont pas en corrélation étroite, ce qui laisse supposer qu'il va falloir des politiques en faveur de l'emploi, soit microéconomiques, soit différenciées, qui se font plus sentir (et touchent proportionnellement plus de gens) au fur et à mesure que le taux de chômage baisse pour assurer la péréquation du chômage régional. Il s'avère aussi un compromis plus fort entre la dispersion et le chômage au cours des années qui suivent l'importante déréglementation de l'économie australienne dans les années 1980. Il est probable que les écarts entre les taux de chômage régional naturel se creusent àcette époque. Der vorliegende Aufsatz untersucht die Natur der Disparitäten der Erwerbslosigkeitsraten der einzelnen Staaten Australiens im Zeitraum 1978-1999 sowie deren Beziehung zur Erwerbslosigkeit Gesamtaustraliens. Mit Hilfe der Ko-integrationsanalyse wird festgestellt, daß die Beziehung zwischen den beiden negativ ist. Dies deutet darauf hin, daß bei Abnahme der gesamtstaatlichen Erwerbslosenrate mikro-und/oder unterschiedliche Arbeitsmarkttaktiken verschärft werden (und verhältnismäßig mehr Personen betreffen) müssen, wenn in den Regionen allgemeine Fairneß in Erwerbslosigkeit erhalten bleiben soll. Darüberhinaus wird festgestellt, daß die Einbußen, die bei Streuung oder Erwerbslosigkeit auftreten, sich in dem Zeitraum nach der Einführung beträchtlicher Wettbewerbsfreiheit in Australien zu Beginn der achtziger Jahre verschärft haben. Es ist wahrscheinlich, daß dies seitdem in einer Zunahme der Unterschiede der natürlichen Erwerbslosenrate zwischen den einzelnen Regionen reflektiert wird.

Renewable energy and unemployment: A general equilibrium analysis

İktisat literatüründe işsizliğin uzun dönem eğilimlerini açıklayan iki önemli görüş bulunmaktadır. Bunlardan ilki “doğal oran hipotezi” diğeri ise “histeri hipotezi” olarak bilinmektedir. Doğal oran hipotezine göre uzun dönemde işsizlik, doğal oranına ulaşacak ve bu oran üzerinde enflasyon ile işsizlik arasındaki değiş-tokuş ilişkisi sona erecektir. Kısa dönemde ise söz konusu değiş tokuş ilişkisi geçerli olacaktır. Histeri hipotezi yaklaşımı ise şokların işgücü piyasasındaki katılıklar nedeniyle işsizlik düzeyi üzerinde kalıcı etkilere sahip olduğunu ileri sürmektedir. İktisadi bir şoktan sonra işsizlik oranı eski seviyesinin çok üzerinde bir patikaya oturacaktır. Bu görüşe göre uzun süre yüksek işsizlik yaşanması doğal işsizlik oranının eski seviyesine dönmesine engel olacaktır. Bu çalışmada OECD ve Türkiye ekonomisi için 1980-2016 yılları arasında işsizlik oranına karşılık gelen enflasyon oranları arasındaki doğrusal ilişkiden hareketle doğal işsizlik oranı ekonometrik olarak hesaplanmaya çalışılmıştır. Elde edilen katsayılar istatiksel olarak anlamlı ve iktisat teorisiyle uyumlu işaretlere sahiptir. Söz konusu dönemde Türkiye ekonomisi için doğal işsizlik oranı %9.14 seviyesinde hesaplanmıştır. OECD ülkeleri için ise İşsizlik oranı %1 puan artığında enflasyon oranı söz konusu dönem için ortalama olarak %0.9 puan azalmıştır. Doğal işsizlik oranı ise OECD ülkeleri için %6.12 olarak hesaplanmıştır. Bu sonuçlar aynı zamanda söz konusu ülkeler için enflasyon ile işsizlik arasındaki ödünleşmeyi gösteren Philips Eğrisi’ nin katsayılarını göstermektedir.

The Nru and the Evolution of Regional Disparities in Spanish Unemployment

Purpose - This study analyzed the determinants of local unemployment rate in Korea using panel data from 16 metropolitan cities and provinces from 2000 to 2018. Design/methodology/approach - We use a dynamic spatial panel model that considers characteristics of the regional unemployment rate such as the common factors effect, spatial dependence, and serial correlations. Findings - The local unemployment rate is affected by the past and present values of the national unemployment rate. And it is significantly affected by the past local unemployment rate and the past neighboring unemployment rate because spatial dependence and serial correlations are clearly present. In addition, when the industrial structure diversity and labor productivity were high, the regional unemployment rate decreased, and when the education level was high, the regional unemployment rate increased. Research implications or Originality - In order to reduce regional unemployment rate, it is necessary to plan and establish regional customized industrial structure policies under the stance of diversification rather than specializing the regional industrial structure and accompany improvement of the quality of education with the number of years of education. In addition, the redistribution of labor from low labor productivity sectors to high labor productivity sectors through technology development will help to reduce the local unemployment rate.

More than a decade after the start of the transition process, unemployment rates remain in the double digits in a number of Central and Eastern European countries. That unemployment rates have failed to decline, even in countries experiencing good growth, is puzzling. In this paper the authors examine three interrelated questions: How has the transition from central planning to market economies affected labor market performance? How have labor market institutions and policies influenced developments? Why have regional differences in unemployment persisted? The authors take an eclectic methodological approach: construction of a new data set and a simple analytical model; econometric estimation; and case studies. They find that faster-performing countries have better unemployment records; that labor market policies have some, but not dominant, influence over labor market outcomes; that policies not typically viewed as labor market policies can nevertheless significantly affect labor markets; and that market processes cannot be relied on to eliminate regional differences in unemployment.

Now, nearly twenty years after its introduction in Friedman (1968), the concept of the rate of is standard in macroeconomics. Theoretically, it is fairly easy to grasp. The natural rate of unemployment prevails when there is equilibrium on the labor market in the sense that price expectations are fulfilled. In the same way as demand and supply, the level of employment is determined by real variables only, provided that price developments are fully anticipated. In a competitive labor market, this implies that demand equals supply. Consequently, the only reason for unemployment in a situation with no excess supply of labor will be structural misfits on the market. However, an equilibrium rate of unemployment may also be the product of a nonclearing market where wages are determined by e.g. trade unions; see Greenhalgh, Layard & Oswald (1983, p. ii). Alternatively, the concept of NAIRU (Non-Accelerating Inflation Rate of Unemployment) is often cited. This term seems to be somewhat broader than the natural rate, implying a rate of unemployment compatible with a stable rate of inflation. According to Thirlwall (1983), there is no empirical difference between the concepts since both are estimated in the same way. Regardless of which term is used, the equilibrium (natural) rate of unemployment is difficult to identify empirically. Nevertheless, the need for such estimates is obvious. Most market economies have exhi-

The relationship between diversity and unemployment has long been an important issue for regional scientists. This article applies quarterly data for four regions in Taiwan during the 1981–2004 period and the empirical results indicate that regional diversity can reduce the national unemployment rate, and this is solid support for the hypothesis of inter-regional migration. To further evaluate this, the interactions among regional unemployment rates are tested using the seemingly unrelated regression estimation approach, where the negative correlations of the regional residuals show that inter-regional migration is indeed an important common factor among regions. An isolated regional labour market with the highest unemployment rate in Taiwan re-confirms that inter-regional migration plays a critical role in lowering national unemployment. In sum, regional diversity can induce migration, which then reduces national unemployment.