Abstract
Recent nonparametric studies find that the regional distribution of unemployment rates is more dependent on geographic location (neighborhood effects) than on national factors (state effects). These results, however, do not control for stochastic dependency between neighborhood and state effects (joint effects) and do not provide any measure of their relative size. In this paper, we construct a simple measure that is invariant in space and across time and compare state, neighborhood, and joint effects in Europe and North America. We find that neighborhood effects are stronger than state effects in Europe, whereas in North America the size of the joint effect is such that one cannot say which effects prevail.
Highlights
Recent studies using nonparametric techniques have begun exploring the spatial dimension of regional unemployment rates (Benito and Ezcurra 2005; Johnson 2000; López-Bazo, Del Barrio, and Artis 2002; Bianchi and Zoega 1999)
For the European Union (EU), we use the finest regional grid set by the OECD (TL3) to measure state and neighborhood effects
Neighborhood unemployment rates are computed as the weighted average of the unemployment rates of the neighboring regions, where the weights are given by the proportion of labor force of each region to the whole neighborhood
Summary
Recent studies using nonparametric techniques have begun exploring the spatial dimension of regional unemployment rates (Benito and Ezcurra 2005; Johnson 2000; López-Bazo, Del Barrio, and Artis 2002; Bianchi and Zoega 1999). In an influential study, Overman and Puga (2002) measure state and neighborhood effects on unemployment rates among 150 European regions from 1986 to 1995. They find stronger neighborhood than state effects and conclude that economies of agglomeration explain the empirical evidence as opposed to national labor market institutions. Second we construct a simple measure of the size of these effects that is invariant across space and time Based on this measure, we compare state, neighborhood, and joint effects within Europe and North America and between them.
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