Abstract
In this paper the author investigates the extent to which regional Europe exceeds its minimum level of nonemployment by estimating a stochastic frontier model. This surplus is called the ‘inefficiency of regional labour markets’—the degree to which potential labour-force resources among the nonparticipants could be further mobilised given the actual unemployment rate. Starting with 130 regions across eight member states of the European Union, two nonemployment frontier models are estimated, one for men and one for women, with annual data derived from Eurostat, 1983–89. It turns out that, on average, 1.9% of the male and 4.8% of the female working-age population could be further mobilised, and that, consequently, the actual unemployment rate is underestimated by 2.8% overall. In addition, a test has been performed as to whether the inefficiency estimates are related to participation, employment, or unemployment figures. It appears that unemployment figures in particular are extremely bad predictors.
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