Productivity and employment adjustments in regional economic resilience

This paper investigates the internal mechanisms of regional economic resilience by examining the interplay between employment and productivity adjustments following a major shock. Using the Covid-19 pandemic as a reference shock, this study adopts a two-stage analytical framework applied to European NUTS2 regions. In the first stage, we employ a counterfactual forecasting model based on long-run pre-crisis trends (1995–2019) to construct an ordered resilience indicator that accounts for the recovery of both gross value added levels and gross value added growth rates. We then develop a novel taxonomy of recovery configurations (weak, employment-led, productivity-led, and balanced) based on post-shock productivity-employment dynamics. A generalized ordered logit model is used to examine how these adjustment configurations relate to resilience outcomes. In the second stage, we investigate the structural origins of these recovery paths using a multinomial logit model, testing the influence of pre-shock characteristics such as related and unrelated variety and structural change. Findings suggest that balanced post-shock growth in both productivity and employment is strongly associated with full growth-path resilience, whereas weak adjustment significantly increases the likelihood of persistent underperformance. Single-margin adjustments provide only partial recovery. Moreover, related variety and prior structural dynamism increase the probability of balanced and employment-led recovery, while unrelated variety is associated with productivity-led adjustment. These results offer critical insights for regional policymakers, suggesting that durable resilience requires policies that simultaneously support employment stabilization and productivity upgrading, alongside structural diversification strategies that enhance adaptive capacity.