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Mind the Gap: Unemployment in the New EU Regions

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  • Ferragina, Anna Maria

    (University of Rome Tor Vergata)

  • Pastore, Francesco

    (Università della Campania Luigi Vanvitelli)

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.

Suggested Citation

  • Ferragina, Anna Maria & Pastore, Francesco, 2005. "Mind the Gap: Unemployment in the New EU Regions," IZA Discussion Papers 1565, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp1565
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    More about this item

    Keywords

    Central and Eastern Europe; optimal speed of transition; structural change; labour turnover; regional unemployment;
    All these keywords.

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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