Regional Employment Dynamics in the EU: Structural Outlook, Co-Movements, Clusters and Common Shocks

This paper considers the evolution of employment across 145 European regions (between 1983 and 1997) at a level of industrial disaggregation greater than that usually considered in the literature. The results highlight that, in the first place, national boundaries are not particularly significant in singling out clusters of regions with similar patterns of employment growth, notwithstanding the country-based economic policies and labour market reforms. What matters is industrial structure: structurally similar regions are to be found in different countries that are not necessarily spatially adjacent. A second finding is that the degree of correlation of manufacturing employment across countries and regions is higher than the correlation of aggregate employment. Third, while the evidence confirms that there is a growing integration among the European regions, it does not corroborate the existence of a core regions located in Northern Europe with more uniform employment dynamics. The key policy implication is that the weight of idiosyncratic elements, i.e. the purely regional component of employment dynamics, points up the inadequacy of a common monetary policy, unless non-monetary policies, either fiscal or structural, are targeted to the needs of specific countries and regions.