Non-Linearity in the Canadian and US Labour Market: Univariate and Multivariate Evidence from a battery of tests

Theodore Panagiotidis and Gianluigi Pelloni

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: The non-linearity of macroeconomic processes is becoming an increasingly important issue both at theoretical and empirical level. This trend holds for labour market variables as well. Reallocation theory of unemployment relies on non-linearities. At the same time there is mounting empirical evidence of business cycles asymmetries. Thus the assumption of linearity /non-linearity becomes crucial for the corroboration of labour market theories. This paper turns on the microscope on the assumption of linearity and investigates the presence of asymmetries on aggregate and disaggregate labour market variables. The assumption of linearity is tested using five statistical tests for the US and Canadian unemployment rates, growth rates of the employment sectoral shares of construction, finance, manufacturing and trade sectors. An AR(p) model was used to remove any linear structure from the series. Evidence of non-linearity is found for the sectoral shares with all five statistical tests in the US case but not in the aggregate level. The results for Canada are not clear-cut. Evidence of unspecified non-linearity is found in the unemployment rate and in the sectoral shares. Overall important asymmetries are found in disaggregated labour market variables in the univariate setting. The linearity hypothesis was also examined in a multivariate framework. Evidence is provided that important asymmetries exist and a linear VAR cannot capture the dynamics of employment reallocation.

Keywords: Non-linearity; Sectoral Shares. (search for similar items in EconPapers)
JEL-codes: C22 C50 E24 (search for similar items in EconPapers)
Date: 2005-08, Revised 2005-08
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: NONLINEARITY IN THE CANADIAN AND U.S. LABOR MARKETS: UNIVARIATE AND MULTIVARIATE EVIDENCE FROM A BATTERY OF TESTS (2007)
Working Paper: NON-LINEARITY IN THE CANADIAN AND US LABOUR MARKETS: UNIVARIATE AND MULTIVARIATE EVIDENCE FROM A BATTERY OF TESTS (2007)
Working Paper: Non-Linearity in the Canadian and US Labour Markets: Univariate and Multivariate Evidence from A Battery of Tests (2004)
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