Regional differences in unemployment remain a major problem in Belgium

Economic opinion

The Belgian unemployment rate has fallen sharply since 2015 and is now at its lowest level since the mid-1970s. Behind this favourable development, however, there are still large and persistent regional differences, not only between the three main regions but also between provinces across regional borders. Since 2007, Belgium has had the largest inter-regional dispersion of unemployment rates in the EU. In other countries where such differences have also traditionally been large (especially Italy and Germany), the dispersion has decreased over the past one and a half decades. This was not the case in Belgium. Against the background of still many unfilled vacancies, more should be done to reduce these large regional differences. It is important to promote the interregional mobility of jobseekers, among other things, through a stronger cooperation of the regional employment agencies. In addition, a more balanced distribution of economic activity across provinces can be ensured through the promotion of local clusters.

It is well known that there are large regional differences in labour market performance in Belgium. More specifically, in recent decades, the differences in unemployment rates between the three regions (Flanders, Wallonia and Brussels) have been large and persistent. But also within the Flemish and Walloon Region, respectively, and across all Belgian provinces, performance has varied widely. In Wallonia, for example, the unemployment rate in 2018 in the province of Hainaut (9.9%) was almost twice as high as the one in the province of Luxembourg (5.3%). Within Flanders, the difference between the extremes was smaller (4.1% in the province of Antwerp compared to 2.5% in the provinces of West and East Flanders), but still significant. The difference between the highest and lowest levels of unemployment has invariably been greater in Wallonia than in Flanders over the past few decades, but it did decrease (Figure 1).

Figure 1 - Dispersion of the provincial unemployment rates in Belgium

Source: KBC Economics based on Eurostat

In the case of the provincial differences, it is striking that the regional border between Flanders and Wallonia still functions as a dividing line. In recent decades, the unemployment rate in the best-performing Walloon province (recently Luxembourg, but in the past often Walloon Brabant) has almost consistently been higher than that in the worst-performing Flemish province (recently Antwerp, but in the past often Limburg). This difference, as well as the difference between unemployment throughout Wallonia and throughout Flanders, seems to be decreasing since 2014 (Figure 1).

The very unequal labour market performance within Belgium is also clearly visible when we make a comparison with the situation in other European countries. Since 2007, Belgium has been the country within the EU with the largest regional dispersion in unemployment rates (viewed at the NUTS2 level, which for Belgium corresponds to the provinces). Previously this was Italy, and at the beginning of the 2000s the dispersion was also bigger in Germany than in Belgium. In both Italy and Germany, the dispersion decreased over the last decade, while in Belgium it remained high (Figure 2).

Figure 2 - Eurostat's measure of the dispersion of regional unemployment rates (*)

Source: KBC Economics based on Eurostat; (*) The dispersion measure calculated by Eurostat is the weighted coefficient of variation. It takes zero if the unemployment rate in each NUTS2 region is equal to the national average and increases as more regions deviate from the average. The weighting takes account of the size of the regions.

The strong dispersion of unemployment rates is partly explained by the spatial concentration of economic activities in core regions, because of agglomeration effects such as economies of scale, knowledge spillovers or the proximity of facilities. As long as agglomeration benefits occur, regional differences in labour market performance are unavoidable to a certain extent. On the other hand, a situation may arise in which agglomeration disadvantages (such as traffic congestion, high establishment costs or lack of space) outweigh the benefits, making it appropriate to deconcentrate activities, as a result of which the dispersion of unemployment rates is reduced. Institutional factors can moreover artificially facilitate the clustering of companies and hamper deconcentration. Examples include under-investment in infrastructure in economically disadvantaged regions or a national wage formation system that prevents wages from adapting sufficiently to differences in local labour productivity.


Persistent unemployment differences across provinces are also caused by the low mobility of labour. With the exception of citizens in the provinces of Flemish and Walloon Brabant, who move to Brussels more often, the flows of commuters to a province other than the one in which they live are limited to at most a few percent of the working population. In a well-functioning labour market, citizens commute or move from regions with high unemployment to regions with low unemployment, thus levelling out differences. The fact that this does not happen sufficiently in Belgium is explained by structural obstacles such as the language barrier, traffic congestion or the relatively high level of home ownership by Belgians. The lack of mobility is also exacerbated by the lack of financial incentives to work. The relatively favourable Belgian system of unemployment benefits leads to a lower cost of being unemployed, which discourages the search for work outside one’s own region.

Encouraging regional mobility of jobseekers and businesses

In recent years, government policies have aimed at promoting the interregional mobility of jobseekers. Despite numerous measures (such as the exchange of job offers between the regional employment agencies, better job search support for young people and those over-50, language training, and degressive unemployment benefits), the results achieved remain insufficient. The interregional matching problem is urgent because the number of unfilled vacancies remains high, despite the ongoing slowdown in economic growth. It is therefore necessary to strengthen cooperation between the regional official employment agencies. Cooperation can be broadened by involving private labour market intermediaries as well, such as temporary employment agencies.

In addition, regional economic policy should be used to ensure a sufficiently balanced distribution of economic activity across regions. In a small country such as Belgium, agglomeration disadvantages due to the very high density of businesses are becoming more and more prevalent. The low tendency of (especially smaller) companies to move contributes to this. By creating attractive locations outside core regions, the government can stimulate the development of local activities and clusters and thus help reduce regional differences in unemployment rates. The fact that companies that are relocating generally grow faster and create more jobs can give this reduction an extra impulse.

Disclaimer:

Any opinion expressed in this KBC Economic Opinions represents the personal opinion by the author(s). Neither the degree to which the hypotheses, risks and forecasts contained in this report reflect market expectations, nor their effective chances of realisation can be guaranteed. Any forecasts are indicative. The information contained in this publication is general in nature and for information purposes only. It may not be considered as investment advice. Sustainability is part of the overall business strategy of KBC Group NV (see https://www.kbc.com/en/corporate-sustainability.html). We take this strategy into account when choosing topics for our publications, but a thorough analysis of economic and financial developments requires discussing a wider variety of topics. This publication cannot be considered as ‘investment research’ as described in the law and regulations concerning the markets for financial instruments. Any transfer, distribution or reproduction in any form or means of information is prohibited without the express prior written consent of KBC Group NV. KBC cannot be held responsible for the accuracy or completeness of this information.

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