The Relationship between Output and Unemployment: National and Regional Evidence in Portugal

Abstract

This paper reports a contribution to the assessment of the output – unemployment rate relationship in the Portuguese economy and in its level 2 NUTS regions. The results show a statistically significant inverse relationship between the two variables both at the national and regional levels. In the national context, the magnitude of the relationship varies significantly according to econometric specification and there are signs that the relationship is unstable throughout the period under review. At regional level, the data show that the equilibrium tends to occur simultaneously for both variables and that the extent of the gap of the output is generally greater than the extent of the gap of the unemployment rate. The results suggest the existence of regional differences in regard to the magnitude of that relationship and, consequently, as for the openness of the regional labour markets, suggesting the need for different public policies.