The Great Recession of the late 2000s has brought to the fore, once again,
the relevance of the relationship between output performance and labour
market developments all over the world. This paper analyses the validity of
Okun?s law in Spain by using regional data from 2000 to 2014, which roughly
encompasses a complete business cycle. By estimating a Spatial Panel Durbin
Model, the results not only show that a robust, inverse relationship between
unemployment and output holds for Spain but also the existence of regional
spillovers (indirect effects). In addition, they reveal that there are no
time asymmetries between the expansion and recession phases of the business
cycle and that human capital, the share of the construction sector, and the
share of temporary workers are key factors in explaining unemployment
changes. From a policy perspective, our findings support the idea of
implementing region-specific policies, since indirect effects are less
relevant than direct ones. In any case, national policies would also be
effective. These policies, whatever their scope, should be mainly
supply-side oriented in expansions (largely labour market policies) and
demand-side focused in contractions.