Labor market efficiency and the dynamic behavior of regional unemployment differentials

Abstract

In dynamic complex economies where unemployment is never zero, relative economic opportunities can be greatly effected by how evenly unemployment is distributed throughout the economy. Accordingly, a study of the temporal behavior of geographic differentials in unemployment rates will yield useful information about how well the labor market performs its resource allocation function. Using spectral methods, this paper tests the competitive theory predictions concerning the dynamic behavior of regional unemployment differentials. While there is evidence that unemployment rates tend to equalize, the results of this study indicate that it is a slow process in which competitive forces are relatively weak. As a result, the secular shift in employment growth from the North to the South and West has been the source of long run regional unemployment differences.