Output growth thresholds for the creation of employment and the reduction of unemployment: A spatial analysis with panel data from the Spanish provinces, 2000–2011

Abstract

The financial crisis that set in at the end of 2007 and the ensuing years of recession have had devastating effects on the labor markets. This has led us to research into employment thresholds -Verdoorn's law - and unemployment - Okun's law - from the perspective of the Spanish provinces. We use a spatial SUR model which allows us to link the panel data with analysis of spatial dependence in order to obtain efficient and robust results about the stability of the Verdoorn and Okun coefficients. We remove the spatial dependence by using spatial filtering techniques from the semiparametric method of vector decomposition. The results show that thresholds vary over time and the output growth required for a rise in employment is well below the level necessary to reduce the unemployment rate.