 Can the Insider-Outsider Theory Explain Unemployment Hysteresis in OECD Countries?Dimitrios Bakas and Yousef Makhlouf NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University Abstract: The insider-outsider theory has been commonly used to explain the hysteretic behaviour of unemployment. However, there is no empirical evidence about the validity of insiders’ power on explaining the persistence of unemployment. This paper, using panel unit root tests that allow for the presence of covariates, addresses this gap and examines whether the insider-outsider theory, by means of various labour market proxies, can explain the hysteresis hypothesis for the OECD countries over 1960-2013. Our results show that although unemployment rate exhibits a pronounced hysteretic behaviour in OECD countries, this behaviour is reversed once we consider the insider-outsider proxies as covariates. This validates the role of insiders’ power as a key source of unemployment hysteresis. Keywords: Insider-outsider theory; Hysteresis; Unemployment; Panel unit root tests (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbs:wpaper:2017/07 Access Statistics for this paper More papers in NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University |
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