Unemployment in European regions: Structural problems versus the Eurozone hypothesis

Unemployment rates differ dramatically across European regions. This article analyses these differences by integrating institutional and spatial perspectives into a unified dynamic framework distinguishing between slow and fast processes of change. The framework forms the basis for an econometric model that is used to analyse labour market differences among European Nomenclature des unités territoriales statistiques 2 regions. The results of random-effects models indicate that four key factors-all of which are of the slowly changing type-explain a large part of the variation in unemployment as well as employment rates. Flexible labour market regulations and above-average levels of interpersonal trust are institutional factors that reduce unemployment. Accessibility factors such as inter-regional transport connectivity and local access to skilled workers have similarly substantial effects. Whether a region belongs to the Eurozone or not seems to be less important.