The evolution of regional unemployment in the EU. An analysis via the Gompertz diffusion process

At the end of Nineties, Danny Quah devoted several papers to the analysis of polarization and stratification in the convergence processes of economies, creating the image of the “con- vergence clubs” and suggesting the importance of studying the distribution dynamics of the macroeconomic variables. As for the labor markets, Overman and Puga (2002) showed that a progressive polarization of unemployment was in fact occurring among the European re- gions in 1986-1996, causing a phenomenon of cross-border clusterization. Here we propose to analyze the evolution of the unemployment rates of the EU27 regions in the last two decades assuming that the unemployment rates evolve according to a Gompertz stochastic process. The estimated parameters of the process - intrinsic growth rate, deceleration factor, volatil- ity - represent the evolutionary path of the unemployment rate and allow for estimating the steady state of the process. A cluster analysis is performed on the steady state values of the unemployment rates. The analysis confirms the emergence of several “convergence clubs” among the European regional labor markets, which are compared to the cluster resulting from the more traditional clusterization on the current unemployment rates.