Regional labor market dynamics in Europe

The paper investigates regional labor market dynamics in Europe and compares the results to those obtained for the US. It analyzes to what extent regional employment dynamics are common to all regions in Europe and to all states in the US. It finds that a larger proportion of movements in employment growth is common to all US states than to all EEC regions. Next, the paper studies the adjustment mechanisms that a typical region-specific shock triggers. It shows that for Europe, in the first three years, most of the shock is absorbed by changes in the participation rate while, in the US, it is immediately reflected in migration. Surprisingly, in both cases, the unemployment rate plays a small role suggesting the presence of natural unemployment rates at the regional level.