Exploring the determinants of the unemployment rate in European countries

Abstract

The unemployment rate remains high in many countries of the European Union. Instead of real wage and social protection determining the unemployment rate, in this paper, we explore variables such as inequality, capacity utilization, and whether or not the countries are core or peripheral as key determinants. We then find evidence favoring heterodox approaches such as classical, post-Keynesian, and Marxian in place of orthodox ones such that proposed by the neoclassical school. In proving the importance of these heterodox variables in determining the unemployment rate, we use appropriate econometric techniques such as Bayesian methods and panel regression.