Mind the Gap: Unemployment in the New EU Regions

Anna Ferragina and Francesco Pastore

No 1565, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The paper surveys the theoretical and empirical literature on regional unemployment during transition in Central and Eastern Europe. The focus is on Optimal Speed of Transition (OST) models and on comparison of them with the neoclassical tradition. In the typical neoclassical models, spatial differences essentially arise as a consequence of supply side constraints and institutional rigidities. Slow-growth, high-unemployment regions are those with backward economic structures and constraints on factors mobility contribute to making differences persistent. However, such explanations leave the question unanswered of how unemployment differences arise in the first place. Economic transition provides an excellent testing ground to answer this question. Prefiguring an empirical law, the OST literature finds that the high degree of labour turnover of high unemployment regions is associated with a high rate of industrial restructuring and, consequently, that low unemployment may be achieved by implementing transition more gradually. Moreover, international trade, FDI and various agglomeration factors help explain the success of capital cities compared to peripheral towns and rural areas in achieving low unemployment.

Keywords: Central and Eastern Europe; optimal speed of transition; structural change; labour turnover; regional unemployment (search for similar items in EconPapers)
JEL-codes: J6 P2 R1 R23 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2005-04
New Economics Papers: this item is included in nep-geo and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published - published in: Journal of Economic Surveys, 2008, 22 (1), 73-113

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Journal Article: MIND THE GAP: UNEMPLOYMENT IN THE NEW EU REGIONS (2008)
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