Local Labour Market Dynamics in the Czech and Slovak Republics

Abstract

This paper addresses the issue whether the differences in national unemployment rates between the Czech and Slovak Republics are in part associated with different responses of regional labor markets. We attempt to assess the relative importance of regional and national shocks in explaining regional unemployment rates in the two countries, by applying a simple VAR model on monthly unemployment rate data. We find that in average Czech regional labor markets are subject to smaller region specific shocks than Slovak regional labor markets. In particular over the period of one year region specific shocks are significantly less important in the Czech Republic than in the Slovak Republic. In Czech regions national shocks tend to be more persistent, while in the Slovak Republic regional shocks have higher persistence. These findings seem to suggest that due to the geography of the country labor markets in the Slovak Republic are regionally more segregated than in the Czech Republic.