Modeling Regional Labor Markets in Germany: Insights not only for German Policy Makers

This paper develops an econometric model for studying the structure of regional labour markets. We estimate the model for three representative Western German federal states. The simulation results of these heterogeneous states reveal substantial structural differences in the short as well as the long-run. These differences impact on labour demand and labour supply and, hence, call for investigating demand and supply of labour instead of merely the unemployment rate. The revealed commonalities and differences may help regional as well as national policy makers to formulate policies tailored at the specific needs of regional labour markets.