Unemployment Convergence in Central and Eastern European Countries: Driving Forces and Cluster Behavior

Employing a nonlinear logistic smooth transition autoregression system and comovement analysis, we find that the German business cycle has acted as a common driver affecting the cyclical behavior of unemployment rates in Central and Eastern European countries. In addition, we identify two convergence clubs in unemployment dynamics. The first comprises the Baltic States, Hungary, and Poland, and the second group of countries is composed of the Czech Republic and Slovakia. Interestingly, this classification matches the labor market policies and institutional divergences observed among these countries. Juan Carlos Cuestas and Javier Ordóñez gratefully acknowledge the financial support of the MICINN (Ministerio de Ciencia e Innovación, Spain) research grant EC02011–30260-C03–01. Javier Ordóñez gratefully acknowledges the financial support of the Generalitat Valenciana project PROMETEO/ 2009/098 and the University Jaume I project P11B2014-17.