Primum Vivere… Industrial Change, Job Destruction and the Geographical Distribution of Unemployment

Francesco Pastore

doi:10.2139/ssrn.2203276

Abstract

This paper aims to provide a frame of mind to understand the link between structural change and regional unemployment, and, based on it, to survey the most recent literature. An overly optimistic view on the ability of the adjustment mechanism to generate convergence in local unemployment rates has long neglected the question of how regional imbalances arise in the first place. The availability of new longitudinal data sets allows us looking again at this issue with a fresh look, starting from patterns of reallocation among labour market statuses. The main conclusion of recent research is that high unemployment regions have a higher, not a lower rate of reallocation; this suggests, in turn, that they do not suffer from low job creation, but, rather, from high job destruction, and this is because of the low competitiveness of any economic activity. Our findings sound as a renowned justification of the need for demand side policy, especially aimed at increasing the life expectancy of private businesses in high unemployment regions.

Highlights

With the explosion of the Great Depression, the risk is high that the already extraordinary gap in unemployment rates among regions of many European countries and of the European Union (EU) will further increase
The degree of specialization is associated with the spatial distribution of unemployment, with a positive sign when we look at small labour markets and a negative sign when labour markets are bigger
Concluding remarks This paper provides a frame of mind to think of geographical differences in labour market dynamics and relate them to the geographical distribution of unemployment rates

Summary

Introduction

With the explosion of the Great Depression, the risk is high that the already extraordinary gap in unemployment rates among regions of many European countries and of the European Union (EU) will further increase. The underlying assumption of the paper is that regional unemployment differentials within the EU remain persistent, despite increasing interregional and intra-European migration flows This suggests, in turn, that there are important factors at a local level that are able to cause regional unemployment differences to generate and persist over time. The data come both from sample surveys and administrative sources This is an important pre-condition to study the impact of industrial restructuring on local unemployment. Related to this has been the flourishing of an increasing body of literature whose results this paper will try to summarise and interpret by proposing a theoretical framework that is often implicit in the empirical literature, but hardly made explicit and discussed in depth.

Theoretical framework

Findings

Empirical evidence