Are Unemployment Rates in OECD Countries Stationary? Evidence from Univariate and Panel Unit Root Tests

Naceur Khraief, Muhammad Shahbaz, Almas Heshmati () and Muhammad Azam

No 9571, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper revisits the dynamics of unemployment rate for 29 OECD countries over the period of 1980-2013. Numerous empirical studies of the dynamics of unemployment rate are carried out within a linear framework. However, unemployment rate can show nonlinear behaviour as a result of business cycles or some idiosyncratic factors specific to labour market (Cancelo, 2007). Thus, as a testing strategy we first perform Harvey et al. (2008) linearity unit root test and then apply the newly ESTAR nonlinear unit root test suggested by Kruse (2011). This test has higher power than conventional unit root tests when time series exhibits nonlinear behaviour. Our empirical findings provide significant evidence in favour of unemployment rate stationarity for 25 countries. For robustness purpose, we have also used panel unit root tests without and with structural breaks. The results show that unemployment hysteresis hypothesis is strongly rejected when taking into account the cross-sectional and structural break assumptions. Thus, unemployment rates are expected to return back to their natural levels without executing any costly macroeconomic labour market policies by the OECD's governments.

Keywords: unemployment; unit root; labour market policy; OECD (search for similar items in EconPapers)
JEL-codes: C23 E24 J48 J64 N30 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2015-12
New Economics Papers: this item is included in nep-ets, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://docs.iza.org/dp9571.pdf (application/pdf)

Related works:
Journal Article: Are unemployment rates in OECD countries stationary? Evidence from univariate and panel unit root tests (2020)
Working Paper: Are Unemployment Rates in OECD Countries Stationary? Evidence from Univariate and Panel Unit Root Tests (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp9571

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().