Human capital and labour market resilience over time: a regional perspective of the Portuguese case

Abstract

This study examines the link between human capital and labour market resilience in the seven Portuguese NUTS-2 regions over the period 1995-2018. We use the Local Projection methodology (LPM) to estimate a SVAR model with three variables (employment, human capital, output) conditioning the response of the labour market to two scenarios depending on whether a shock to GDP occurs during recessions or during expansions, with output gap as the switching variable for the identification of recession and expansion regimes. The comparison of the employment responses to GDP shocks between the two regimes is informative about the degree of resilience of the labour market. We find evidence of: (i) distinct effects in terms of the sign and amplitude of GDP shocks on regional employment according to the level of educational attainment of employees; (ii) labour market resilience but jobless recoveries in several regions; and (iii) different regional reactions of human capital to GDP shocks depending on the regime.