ETLA Discussion Papers, The Research Institute of the Finnish Economy (ETLA) 716
The aim of this study is to characterize the structure and the evolution of Finnish regional labour markets in terms of gross job and worker flows using plant-level data. There is no solid evidence that the job creation rate is on average lower in Eastern and Northern Finland. The rapid rise in regional unemployment disparities in the 1990s can be explained via the rise in the disparities in job destruction rates across regions during the great depression of the 1990s. There are some interesting differences in the adjustment of labour demand during the great depression of the early 1990s. For example, the results indicate that the magnitude of structural change measured by the churning rate (i.e. excess worker reallocation) is especially high in Uusimaa. This suggests that the intensity of structural change is high in Uusimaa, where the unemployment rate has been lower than in Finland on average. Kainuu has the lowest level of the churning rate, where the unemployment rate has been highest during the past few decades. Thus, the results suggest that the most important structural features that explain the high unemployment rate of Kainuu is the fact that the structural change within plants does not revitalize the economic activities of the region enough. In addition, there was a sharp decline in the churning rate in all provinces during the great depression of the 1990s.