Policy responses to regional unemployment: lessons from Germany, Spain and Italy

In this paper we identify the main policy responses to the problem of regional unemployment in Germany, Spain and Italy. The paper takes a broad perspective in looking at the determinants of regional unemployment, the regional incidence of national policies and the effects and efficiency of regional policies. In spite of the very different situations and conditions in each country, there are a number of conclusions and policy options to reduce regional unemployment which governments and social partners should evaluate thoroughly. First, a stability-oriented macroeconomic policy-mix with a sufficiently flexible labour market is a necessary, although not sufficient condition for growth and employment at both national and regional levels. Second, the collective wage bargaining systems should either be decentralised de facto or should be complemented with easy-to-apply opt-outs at regional or firm level, thus allowing account to be taken of local or firm-specific conditions. Third, in order to avoid a long-term dependency of regions on fiscal transfers, incentives need to be set in such a way as to achieve an adequate balance between efficiency and equity. Fourth, the tax-benefit system should provide more incentives to create and take up jobs since disincentives are a particularly relevant problem for low-income regions. Fifth, pro-active regional policy expenditure on physical and human capital is indispensable for the catching-up of poorer regions, and the efficiency of these policies needs to be evaluated on a systematic and permanent basis. Finally, the low level of geographic mobility in the three countries needs to be addressed by a wide range of measures including greater regional differentiation of both wages and the tax-benefit system, more flexibility of the housing market, a more
balanced use of fixed-term and permanent employment contracts as well as
improvements in the public employment services.