Labour force participation rates at the regional and national levels of the European Union: An integrated analysis

This study investigates the causes of variation in regional labour force participation rates in a cross-country perspective. A microeconomic framework of the tabour force participation decision is aggregated across individuals to obtain an explanatory model of regional participation rates in which both regional-level and national-level variables serve as explanatory variables. An appropriate econometric model of random coefficients for the regional variables and fixed coefficients for the national variables is developed, further taking into account that observations may be correlated over time and in space and that some of the explanatory variables are not strictly exogenous. This model is estimated for men and for women, using annual 1983-1997 Eurostat data frorn 157 regions across 13 EU Countries. The hypotheses that regional participation rates in the EU are determined by a common structure and that labour force participation can be encouraged by a common policy must be strongly rejected.