Regional Disparities in the Relationship between Economic Growth and Unemployment

Abstract

The imbalance of the economic and social level between territorial units is a problem of many countries, including Slovakia. In addition to product losses, the absence of labor incomes of lagging territorial units and their reduced ability to develop independently appear to be a problem. The reason for such a situation may be low economic activity as well as a weak relationship between employment in some regions. The aim of this study is to identify differences in the relationship between the rate of economic growth and changes in the unemployment rate in the all regions at the NUTS3 level in Slovakia in the period 1999-2018. To examine the relationship between unemployment and the rate of economic growth, a gap version of Okun's Law was used. A simple linear regression model was constructed for each region at NUTS 3 level. By comparing the values of constructed econometric models, the regional differences and sources of these differences were identified. The results of the analyzes have indicated that there is a direct causal relationship between the change in unemployment and the rate of economic growth in the short term. The correlation coefficients confirmed the negative relationship between GDP growth rate and unemployment. The strength of the relationship across region at NUTS 3 level was differentiated, but in all NUTS 3 regions was statistically significant. The impact of the growth rate on changes in unemployment has been found to be differentiated mainly according to the size of unemployment, as well as the sources and stability of the rate of economic growth and the structure of economic activities.