Investigating employment patterns and determinants in the European Union through panel data insights

Abstract Employment is an important element of inclusive and sustainable economic growth because it has powerful effects on society. At the individual level, employment is a prerequisite for economic independence, social development, and professional satisfaction. At the macroeconomic level, employment enhances consumption, which leads to businesses’ progress, being considered the most meaningful factor for combating poverty and social exclusion. Although the goal is the same, countries can face different barriers and require different policies. This article investigates recent trends, patterns, and employment determinants in the European Union (EU) member states. We use cluster regression with fixed effects panel data models to group the countries into homogeneous clusters and obtain specific coefficients for each cluster. The clustering algorithm identified the heterogeneity of the countries, indicating an optimal number of three clusters for the grouping of EU states, considering the set of variables used. The selected indicators covered the economic, educational, and social dimensions, providing a complex vision of employment and how it can be improved. Our results indicated that social protection expenses, income, and gender inequalities negatively influence the employment rate. In contrast, educational, trade openness, and research and development expenditures increase employment in the EU. Moreover, the results obtained for each cluster allow the conclusions to be nuanced, indicating different patterns within the EU but still similarities between certain countries, providing an in-depth investigation of employment helpful in supporting the goal of inclusive economic growth of the EU member states.