The paper models the effects of various macroeconomic and business indicators as well as environmental impacts for the period from January 2002 to December 2013 in order to explain the differences in the Croatian regional unemployment. The paper proposes use of relatively novel methodology for modelling regional unemployment. The applied methodology enables joint modelling of all Croatian counties in a single (global) model and employing a rich set of variables, as well as accounting for interactions among regional labor markets, economic activities and firms. The study indicates an absence of conventional market economies adjustment mechanisms on the regional labor markets. Low flexibility of the regional labor markets combined with strong dependence on national dynamics makes regions highly exposed to the occurrence of economic downturn.