Sectoral shifts, diversification and regional unemployment: evidence from local labour systems in Italy

Using Local Labour Systems (LLSs) data, this work aims at assessing the effects of sectoral shifts and industry specialisation patterns on regional unemployment in Italy over the years 2004-2008. Italy represents an interesting case study because of the high degree of spatial heterogeneity in local labour market performance and the well-known North-South divide. Furthermore, the presence of strongly specialised LLSs (Industrial Districts, IDs) allows us to test whether IDs perform better than highly diversified urban areas thanks to the effect of agglomeration economies, or vice versa. Building on a semiparametric spatial auto-regressive framework, our empirical investigation documents that sectoral shifts and the degree of specialisation exert a negative effect on unemployment dynamics. By contrast, highly diversified areas turn out to be characterised by better labour market performances.