UNEMPLOYMENT DYNAMICS IN SPAIN, A REGIONAL ANALYSIS WITH A MARKOV REGIME SWITCHING APPROACH

Abstract

The aim of this paper is to analyze the Spanish unemployment dynamics, on national and regional levels, with a Markov Regime Switching model on quarterly data from 2002 to 2020. We test for hysteresis; we estimate the transition probabilities of regime change and the relative expected durations. Our results confirms the presence of asymmetry and hysteresis in both national and regional unemployment rates, we also found that when national unemployment switches to a regime associated with higher duration and lower volatility, the same behavior is observed only in half regions. The policy implications we derive from our results are the need for more region’s specific actions to increase labor and firm mobility between regions and the performance of future labor market reforms.