Estimating the regional natural rate of unemployment: the evidence from the Czech Republic

The paper deals with development of the regional unemployment rate in the Czech Republic. The unemployment rate differed significantly among the Czech NUTS 3 regions during the period 2005 and 2012. According to previous studies high unemployment is caused by drop in economic performance or by some structural problems in the region. We can see that the development of the Czech national unemployment rate was correlated with the economic cycle. In other words, it means that during economic growth the unemployment rate is decreasing and during economic downturn it is increasing. We used Czech Ministry of Labour and Social Affairs monthly seasonally adjusted data during the observed period between the years 2005 and 2012. We have applied 2005 registered unemployment methodology. In total, we had 96 observations. We also applied the Hodrick-Prescott filter for estimating the natural rate of unemployment. This method is often used for estimating the potential output and is possible to use in the case of unemployment. Our empirical results show that in most regions the real unemployment rate was lower than the natural rate of unemployment during the pre-crisis period. In other words, it means that the Czech labour market was in positive unemployment gap. However, this gap was not the same in all regions. We found that the positive unemployment gap was lower in the problematic regions like the Ustecky and Moravskoslezsky region. These findings suggest that these regions still have to face some structural problems and the labour market is not so flexible as in the rest of regions. In addition, we also found that the natural rate of unemployment has shifted permanently higher in comparison with the pre-crisis period