Does the regional economic context predict subjective labor market opportunities? Evidence from Germany, UK, Spain and Sweden

Authors – Matthias Enggist, Katy Morris, Gina-Julia Westenberger.

Abstract :

Regional economic and labor market inequalities have increased in Western Europe, especially between thriving urban centers and declining industrial or rural areas. This growing spatial polarization has been identified as an important driver of political behavior. However, such theoretical frameworks – linking regional economic contexts to political outcomes – often assume that individuals accurately perceive their regions’ economic well-being and shape their beliefs about their own economic situation accordingly. Yet, the empirical validation of the link between objective economic indicators and subjective perceptions of one’s own economic situation has received surprisingly little attention.

We explore whether and how much individual perceptions of their chances of being in stable employment until retirement are influenced by a) current regional economic conditions and b) change in regional conditions. Furthermore, we explore whether the impact of the local context on perceived labor market opportunities varies according to individuals’ skill-levels and whether they work in a booming or declining occupation. Our analysis draws on individual-level data (Welfarepriorities-data) with more than 9’000 observations from four large Western European countries (Germany, UK, Spain, Sweden) in 2021. It measures respondents’ perceptions of future labor market opportunities (“If you think of your future, how do you rate your personal chances of being in good, stable employment until you will retire?’) as well as their place of residence. Our measure of objective local economic conditions is composed of indicators of GDP per capita, the unemployment rate and the occupational structure, all at the NUTS-3 level.

Preliminary findings indicate that when controlling for individual-level determinants of labor market opportunities, regional economic conditions do not consistently correlate with individuals’ perceptions of their labor market opportunities. Contrary to expectations, residents of regions characterized by high unemployment, low GDP per capita, low economic growth or limited occupational upgrading do not consistently rate their labor market opportunities more pessimistically than their counterparts in economically booming regions. However, a significant relationship emerges between objective economic conditions and subjective labor market opportunities specifically for low-skilled workers in declining occupations. Hence, it is individuals in economically vulnerable positions who – more than anyone else – are receptive to their region’s economic performance. These findings have important implications for the burgeoning literature explaining political behavior with (deteriorating) local economic conditions. They suggest that only among specific segments of the workforce, the link between regional economic context and political behavior can be attributed to egotropic pocketbook considerations.