Is Sectoral Diversification a Solution to Unemployment? Evidence from EU Regions

There is a growing interest in the academic and policy making communities in understanding the effects of sectoral specialisation on labour market performance. The existing empirical evidence, mainly based on US data, generally finds a positive correlation between sectoral specialisation and labour market indicators such as wages and unemployment. The policy implication one can draw from these results is that fostering sectoral diversification may reduce unemployment. However, this lesson may not hold for all countries. In particular, in the case of Europe, the diversity of labour market institutions may play a distinct role in shaping the relationship between sectoral specialisation and labour market performance. Copyright 2005 Blackwell Publishing Ltd..