Hysteresis without Hope: investigating unemployment persistence in South Africa

Vincent Dadam and Nicola Viegi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates hysteresis in South Africa's unemployment. First we test the presence of hysteresis in unemployment both by traditional stationarity tests and by us- ing non-linear transformation methods to identify two further characteristics of hysteresis, namely remanence and selective memory. In the second part of the paper we estimate a simple insider-outsider model using a Bayesian VAR methodology to identify the shocks driving the unemployment dynamics. The main �nding is that shocks to nominal wages and mark-up shocks as the main drivers of unemployment. Demand shocks do not play a dominant role. These results point to the di�culty of absorbing the current level of unemployment without signi�cant positive shocks in market structure and wage setting behaviour. The strong hysteresis present in the data shows that this excessive level of un- employment can become "equilibrium": the South African labour market presents features of the worst kind of hysteresis, a hysteresis without "hope". �

Keywords: hysteresis; unemployment; South Africa (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2021-05-31
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:108129

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