On regional unemployment: an empirical examination of the determinants of geographical differentials in the UK

In this paper we consider the determinants of regional disparities in unemployment rates for the UK regions at NUTS-II level. We use a mixture panel data model to describe unemployment differentials between heterogeneous groups of regions. The results indicate the existence of two clusters of regions in the UK economy, characterized by high and low unemployment rates, respectively. A major source of heterogeneity appears to be caused by the varying effect (between the two clusters) of the share of employment in the service sector, and we trace its origin to the fact that the high unemployment cluster is characterized by a higher degree of urbanization.