Spanish Regional Unemployment ― Disentangling the Sources of Hysteresis

This work investigates the time series properties of the unemployment rate of the Spanish regions over the period 1976-2011. For that purpose, the authors employ the PANIC procedures of Bai and Ng (2004), which allows to decompose the observed unemployment rate series into common factor and idiosyncratic components. This enables the authors to identify the exact source behind the hysteretic behaviour found in Spanish regional unemployment. Overall, the analysis with three different proxies for the excess of labour supply renders strong support for the hysteresis hypothesis, which appears to be caused by a common stochastic trend driving all the regional unemployment series. In the second part of the analysis the authors try to determine the macroeconomic and institutional factors that are able to explain the time series evolution of the common factor, and in turn help us shed light on the ultimate sources of hysteresis. The reader shall see how the variables that the empirical analysis emphasises as relevant closely fit into the main causes of the Spanish unemployment behaviour. Finally, some policy considerations drawn from the results are presented.

Alejandro Garcia-Cintado is Assistant Professor at Pablo de Olavide University (Seville) and Visiting Professor at Paris-Est Creteil Val-de-Marne University (France). His research interests lie in the fields of Macroeconomics and International Economics.

Diego Romero-Avila is Associate Professor at Pablo de Olavide University. He has been Research Fellow at the European Central Bank and Visiting Professor at Vienna University of Economics and Business. His research interests lie in the fields of Macroeconomics and Development Economics. He has published articles in such academic journals as International Economic Review, Journal of Money, Credit and Banking, Canadian Journal of Economics, World Development, Economic Inquiry, Journal of Banking and Finance and European Journal of Political Economy among others.

Carlos Usabiaga is Full Professor of Economics at Pablo de Olavide University. He has been Visiting Researcher at the London School of Economics, Northwestern University (USA), European University Institute (Florence), CEMFI (Madrid) and FEDEA (Madrid). He has been Head of the Department of Economics at Pablo de Olavide University for 8 years. He has published widely on Macroeconomic and Labour topics. He was the author of a book published by Macmillan in 1999 and translated into Spanish. He has published articles in such academic journals as Empirical Economics, Economic Modelling, Southern Economic Journal, Contemporary Economic Policy, Applied Economics, among others.