Regional Disparities in Europe

IMF Working Papers, September 30, 2022

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Authors: Ravi Balakrishnan, Louise Rabier, Christian H Ebeke, Melih Firat, Davide Malacrino
Published: September 30, 2022
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400219184.001

Study scope: 10 advanced European economies.
While the level of disparities across regions mostly reflects productivity gaps, the increase since the Great Recession has resulted from diverging unemployment rates.
Following the pandemic, disparities could be further exacerbated because teleworkability rates are lower in poorer regions than in high-income regions, making poorer regions ex-ante more vulnerable to the pandemic’s likely material impact on the prevalence of remote work.
Preliminary evidence from 2020 confirms that regional disparities between countries increased during 2020.
The pandemic might accelerate the automation of jobs across Europe, a pattern that often follows recessions.
Lagging regions have lower ex-ante vulnerabilities against routinization, but the transformation of jobs through sectors with higher routinization rates in these regions could increase their vulnerability to technological change over time.
The green transition could lead to challenges for regions that have benefitted from carbon-intensive growth strategies.
The paper discusses the role for policies—including place-based ones—in reducing disparities in the face of the aforementioned short, medium, and long-term risks.

Short term: Pandemic-related shifts in remote work prevalence, with poorer regions more vulnerable due to lower teleworkability rates.
Medium term: Acceleration of automation following the recession, producing sectoral job transformations that may increase vulnerabilities in lagging regions.
Long term: Green transition adjustment costs for regions reliant on carbon-intensive growth strategies.

Consider place-based policies to reduce regional disparities while addressing pandemic-induced shifts in work patterns.
Anticipate and manage the distributional effects of automation, particularly where sectoral changes could expose lagging regions to higher routinization.
Design transition strategies for regions dependent on carbon-intensive industries to mitigate adverse effects of the green transition.