Relations between economic performance and spatial disparities of unemployment

Abstract

Over the past two decades, there has been a notable similarity across Hungarian counties in the changes in the unemployment rate. During the transformational recession and – more recently – after the financial crisis of 2008, all of the counties experienced the same rise in the unemployment rate, while regional disparities narrowed. However, during the economic recovery after the first recession, the disparities widened. These patterns suggest the existence of an equilibrium relationship between economic performance and spatial disparities of unemployment, which has been described for several countries with fully developed market economies, but so far has not been analysed in the situation of an economic transformation following a change of the political system.

This study attempts to detect the same correspondence between economic performance and spatial disparities of unemployment, examining the experiences of the first 21 years after the change of the political system. To do this, econometrics-based empirical investigation, including tests for correlation and cointegration were used. After testing for non-stationarity in the trends of the indicators of spatial disparities and the national unemployment rate, taken as a proxy of economic performance, the vector error correction approach was applied to test for cointegration between the variables. Although the results exhibit no unambiguous evidence of the relationship for the time series as a whole, governmental adjustments could suggest breaks in the trends of the variables. To take this into consideration, the periods before and after the trend break of 2001 were analysed separately, as several governmental adjustments happened around that year which could have modified the relationship. However, repeated tests on the distinctive components of the whole period showed no evidence of the hypothesised correspondence in Hungary, either.

It seems that the processes of slow economic transformation and governmental adjustments did not allow this phenomenon to develop. Considering the shortness of the time series within post-1989 Hungary and the unexpected long-term effects of the recent crises, further investigation will be needed to trace the potential manifestation of such a relation.