Regional unemployment disparities and their dynamics: Evidence from the Czech Republic

Regional disparities have become a debated topic in the last two decades. Aim of this paper is to estimate trends in regional disparities at the level NUTS 3 during the period 2005-2011. This paper looks at unemployment in the Czech Republic and its persistence over time. The Czech labor market has faced many changes during this period, which were reflected not only at the national but also at the regional level. It also attempts to identify the factors responsible for this persistence. Regional unemployment trends during this period show that they have been characterized by a high degree of synchronicity, and regional unemployment disparities by a remarkable persistence. This persistence mostly reflects the existence of an underlying interregional equilibrium structure of unemployment differences, rather than prolonged inter-area labor market disequilibrium. Another aim of this paper is to test if regional and national unemployment rates are co-integrated, in other words if the long-term relationship between regional and national unemployment rates exists. Monthly Czech Ministry of Labor and Social Affairs data were used for the analysis. The Johansen test was applied on 2005-2011 data to examine co-integration between the regional and national unemployment rates. On the basis of the unit root test, we found that both variables are integrated of order I(1). Cointegration relationship thus has been demonstrated for Praha and the national unemployment rate only. So does the ECM. ECM implies deviation from equilibrium in short-run. About 23 % of deviation is corrected each month.