Hysteresis versus natural rate in Taiwan's unemployment: Evidence from the educational attainment categories

Ming-Jen Chang and Che-Yi Su

Economic Modelling, 2014, vol. 43, issue C, 293-304

Abstract: This study examines the hysteresis hypothesis in unemployment for Taiwan's educational attainment categories. Both nonlinear dynamics and structural breaks in unemployment are applied in our examinations. The empirical results without structural changes show that the unemployment hysteresis hypothesis cannot be rejected in all educational attainment categories. After simultaneously incorporating nonlinear processes and smooth structural changes, we find that only the unemployment rate of junior college graduates reveals a mean reverting to the natural rate in the long-run, whereas all other series still support the hysteresis hypothesis. The results indicate that: i) the shocks have only temporary effects on the unemployment rate of the junior college graduates; ii) the labor or macroeconomic stabilization policies could have long lasting effects on unemployment rates of the other educational attainment categories; iii) the unemployment rates of low-skill labor are susceptible to the changes of economic or fiscal policies; and iv) practical and occupational training mechanisms should be implemented and strengthened in the higher education system to alleviate the increasingly serious problem of unemployment.

Keywords: Education; Fourier function; Hysteresis in unemployment; Panel KSS unit root test; Sequential panel selection method (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:43:y:2014:i:c:p:293-304

DOI: 10.1016/j.econmod.2014.08.015

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