Regional Adjustment to Employment Shocks: Italy 1960-1994

Abstract

In this paper I study the dynamic response of regional variables to employment shocks in Italy 1960-94. Considering an univariate model I find low persistence of the regional unemployment rate in deviation from the national mean. This confirms previous results (Eichengreen 1992) and suggests that some other mechanisms besides migration are at work to restore regional labour market equilibrium in Italy. Using multivariate VAR analisys we obtain that movements in partecipation rather than in migration of workers explain the low persistence of regional relative unemployment in the average Italian region. Wage response to employment shocks has very mild effects on employment and migration dynamics. Adjustment dynamics are very different in the North and the South. The southern regions show a very persistent unemployment and very low interregional migration in response to employment shocks. The lack of interregional migration in the South could be an explanation of the growing gap in unemployment rates between North and South, at least for the part not due to changes in regional natural rates.