Disparities, persistence and dynamics of regional unemployment rates in Germany

"The paper shows that the distribution of regional unemployment rates in Germany exhibits strong persistent behaviour. Furthermore, panel unit root tests and autoregressive fixed effects models indicate that regional unemployment rates display conditional rather than unconditional convergence. Thus, highly persistent unemployment disparities can be regarded as region-specific unemployment rates due to different regional endowments, adjusting quite rapidly to their region-specific means and therefore towards a stable pattern of unemployment disparities, rather than towards the national unemployment rate. Additionally, an investigation of adjustment processes suggests that the degree of persistence in western German unemployment rates after aggregate shocks has decreased markedly since the 1960s. For more recent years (1989-2004), neither aggregate nor region-specific shocks exhibit persistent behaviour. Therefore, slowworking adjustment mechanisms in response to shocks are not responsible for the persistent unemployment differentials. A comparison of regions and districts shows that the two regional levels have quite similar adjustment paths. The estimated half-lives of both aggregate and regionspecific shocks are found to be very robust within a range of 1-3 years." (Author's abstract, IAB-Doku) ((en))