Labour Market Institutions and Regional Unemployment Disparities

We conduct a theoretically based, empirical analysis of the impact of national wage bargaining, labour market and housing market institutions as well as product market regulation on regional unemployment rate disparities. Using both national and regional data on unemployment rates for 14 EU countries for the period 1998 to 2009 we find a robust correlation between centralisation, net replacement rates and regional autonomy with the size of regional unemployment rate disparities within a country and a further potential role for minimum wages, generosity of old age and sickness benefits, marginal tax rates, housing market flexibility, employment protection and the costs of overtime contracts. In contrast to expectations only the regional autonomy index, net replacement rates, sickness benefits and employment protection are positively correlated with regional unemployment rate disparities, while the other robust variables are negatively correlated.