Polarization or convergence? An analysis of regional unemployment disparities in Europe over time

We analyse the distribution of regional unemployment rates in Europe and its dynamics. Using the standard deviation, non-parametric kernel densities, and stochastic kernels we identify and study two distinct periods: a convergence from 1996 to 2007 and a polarization from 2007 to 2013. We further estimate a multi-level factor model to identify the contributions of continental, country and region-specific fluctuations. We show that the convergence prior to the recent crisis is solely accounted for by country factors, whereas the strong polarization afterwards can be attributed to both country and region-specific fluctuations. In addition, we provide evidence for European unemployment cycles and discuss interesting regional patterns.