ARE LABOUR FORCE PARTICIPATION RATES NON‐STATIONARY? EVIDENCE FROM 130 YEARS FOR G7 COUNTRIES*

This paper applies a unit root test with a non‐linear threshold to examine whether labour force participation rates are mean reverting for G7 countries using annual data over a 130 year period. We find some evidence of mean reversion for just over half the sample; however, this result is sensitive to regime shifts. We also examine whether the labour force participation rate is trend reverting through employing a lagrange multiplier (LM) unit root test with one and two structural breaks in the intercept and slope. The LM unit root test provides no additional evidence in support of stationarity. On the basis of the unit root tests for mean reversion we conclude that there is at best mixed evidence that long‐term changes in unemployment rates translate into long‐term changes in employment rates and that the unemployment rate is a useful indicator of joblessness.     

HYSTERESIS IN UNEMPLOYMENT REVISITED: EVIDENCE FROM PANEL LM UNIT ROOT TESTS WITH HETEROGENEOUS STRUCTURAL BREAKS

This paper applies the panel LM unit root tests with heterogeneous structural breaks in level by Im  et al. ( Oxford Bulletin of Economics and Statistics , 67 (2005), pp. 393–419) to re-examine the validity of hysteresis in the unemployment rates of 19 OECD countries. Our empirical findings are favourable to the stationarity of the unemployment rates, i.e., the unemployment hysteresis hypothesis is strongly rejected. Our results suggest that shocks to unemployment rates are temporary and soon converge when we control for breaks. A major policy implication of the study is that a fiscal or monetary stabilization policy would not have permanent effects on the unemployment rates of the 19 OECD countries.     

Unemployment Hysteresis in Australian States and Territories: Evidence from Panel Data Unit Root Tests

This article tests for hysteresis by applying panel data unit root tests to quarterly unemployment rates for Australian states and territories between 1982:2 and 2002:1. Panel tests proposed by Levin and Lin (1992) using ordinary least squares and O'Connell (1998) using feasible generalised least squares (which assume that under the alternative hypothesis of stationarity, all labour markets revert to the natural rate at the same speed) provide evidence in support of the natural rate hypothesis. However, the panel test proposed by Im, Pesaran and Shin (1997), which does not assume that all cross‐sectional units converge towards the equilibrium value at the same speed under the alternative and is therefore less restrictive than the other two panel tests, finds evidence of hysteresis. Given the advantages of the Im et al. (1997) test over the other two panel tests the results can be interpreted as being consistent with the existence of hysteresis in unemployment     

Unemployment by Gender: Evidence from EU Countries

This paper applies panel unit-root tests that allow for structural breaks and cross-sectional dependence to examine the validity of hysteresis in gender unemployment rates and gender unemployment gap for a panel of 15 European countries. Addressing breaks, there is evidence to reject the null hypothesis of hysteresis for the unemployment rates and unemployment gap series. Allowing for both cross-sectional dependence and heterogeneous structural breaks, this result is reverted, and we fail to reject the null hypothesis of unit root.     

Testing for unemployment hysteresis in nonlinear heterogeneous panels: International evidence

Nonlinear behavior of unemployment is well documented in the literature, and thus linear unit root tests may not be appropriate in this case. This paper tests for hysteresis of unemployment for 29 OECD countries through the use of a new nonlinear panel unit root test developed by Ucar and Omay (2009). The test examines the joint null hypothesis of linearity and a unit root against the alternative hypothesis of nonlinear stationarity. Large power gains are achieved by both combining cross-sectional information with nonlinearities in the data. In addition, after the unit root null being rejected, we use a sequential panel selection method suggested by Chortareas and Kapetanios (2009) to classify the whole panel into a group of stationary countries and a group of non-stationary countries. The empirical findings show that the nonlinear panel test gives strong evidence in favor of the natural rate hypothesis of unemployment for 23 of 29 OECD countries, in contrast to those obtained by Chang's (2002) linear panel test that 17 countries display evidence of stationary unemployment.     

Unemployment Hysteresis in Transition Countries: Evidence using Stationarity Panel Tests with Breaks

The authors test hysteresis versus the natural rate hypothesis in unemployment using panel data for transition countries covering the period 1991:1–2003:11. The advantages of the stationarity tests applied is that they exploit the cross-section variations of the series and, additionally, allow for a different number of endogenous breakpoints in the unemployment series. They do not impose independence on the panel members, so that the critical values are simulated based on their specific panel sizes and time periods. The findings stress the importance of accounting for exogenous shocks in the series and give support to the shifting natural-rate hypothesis of unemployment for all the countries analyzed.     

INTERNATIONAL LABOUR FORCE PARTICIPATION RATES BY GENDER: UNIT ROOT OR STRUCTURAL BREAKS?

This paper examines the possibility of unit roots in the presence of endogenously determined multiple structural breaks in the total, female and male labour force participation rates (LFPR) for Australia, Canada and the USA. We extend the procedure of Gil‐Alana for a single structural break to the case of multiple structural breaks at endogenously determined dates using the principles suggested by Bai and Perron. We use the Robinson LM test to determine the fractional order of integration. We find that endogenously determined structural breaks render the total, female and male LFPR series stationary or at best mean‐reverting.     

Structural unempolyment in Australia

This paper examines whether structural unemployment increased in Australia over the last two decades. A simple regression model has been considered for testing the hypothesis of increase in unemployment of several segment of the labour force over time. Six dimensions of the labour force, namely age, sex, region, duration of unemployment, occupation and industry, have been taken into account. Analysis of the regression results reveals that the structural unemployment problem is substantial with respect to age, sex, duration of unemployment occupation and industry. Regarding region the evidence for structural symptom is not very strong.     

Unemployment hysteresis - macro evidence from 16 OECD countries

This paper investigates empirically the presence ofunemployment hysteresis in 16 OECD countries, applying aggregate quarterly unemployment rates covering the past 25 years. Alternative test procedures are discussed and employed, posing both stationarity and hysteresis as null hypotheses. The results suggest that hysteresis effects are highly significant in Australia and Canada, and to a lesser extent also significant in most European countries and in Japan. Only in the USA, the presence of unemployment hysteresis is strongly and consistently rejected.Without attributing to them opinions or errors in the paper, I wish to thank Steinar Strøm, Ragnar Nymoen, Arvid Raknerud, Anders Rygh Swensen, Jeremy Smith and two referees for helpful comments.     

Are EU budget deficits stationary?

In this paper, we test for the stationarity of European Union budget deficits over the period 1971–2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (1) the presence of cross-sectional dependence among the countries in the panel and (2) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ an AR-based bootstrap approach that allows us to test the null hypothesis of joint stationarity with endogenously determined structural breaks. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal stationarity over the full sample period irrespective of us allowing for structural breaks. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.     

Are OECD consumption–income ratios stationary after all?

This paper investigates the stochastic properties of the consumption–income ratio for a sample of 23 OECD countries over the period 1960–2005. For that purpose, we employ a battery of recently developed panel unit root and stationarity tests. Our findings from panel unit root tests which do not control for structural breaks appear in line with those from previous studies since they are clearly supportive of the unit root hypothesis. In stark contrast stand the results obtained from the application of a panel stationarity test with multiple breaks, which support the existence of regime-wise stationarity in OECD consumption–income ratios once we control for cross-sectional dependence through bootstrap methods. These findings are reinforced by the median-unbiased estimates of half-lives obtained from impulse-response functions which are found to be finite for the 23 OECD countries.     

A new test for analysing hysteresis in European unemployment

This article proposes a new unit root test to analyse unemployment hysteresis. The test is able to incorporate cross-sectional dependence, unattended nonlinearity and unknown structural breaks in the time-series data. This study used data on unemployment in five European countries. The findings indicated that conventional unit root tests failed to reject the null hypothesis of hysteresis for all countries. However, the newly proposed unit root test was able to reject the null hypothesis for the Spanish unemployment rate.     

Does the unemployment invariance hypothesis hold for Romania?

This article questions whether the unemployment invariance hypothesis of Layard et al. (2005), which states that movements in labour force do not significantly affect unemployment rates, holds true for Romania. Using quarterly labour force data for the 1996–2012 period, we explore the time-series properties of the two variables. We find that unemployment rates and participation rates have unit roots, and that they are not cointegrated, meaning that no significant long-term relationship exists between them. The analysis carried out on the first differences of unemployment rates and participation rates shows discouraged and added worker effects for Romania’s female labour force. This conclusion diverges from findings that point out to a stable, long-term relationship between unemployment and participation in several developed countries (Japan, Sweden, USA) and shows that Romanian labour market is highly adaptive, where changes in labour force participation do not lead to increases in unemployment. This finding can help model the influence of adverse developments such as ageing and emigration, and show their true impact beyond demographic doom scenarios. It also points out the role played by labour demand in shaping the evolution of the Romanian labour market.     

Is Asian per capita GDP panel stationary?

The goal of this paper is to examine whether per capita GDP for 15 Asian countries is panel stationary. We apply a panel test for stationarity that allows for multiple structural breaks developed by Carrion-i-Silvestre et al. (Econ J 8: 159–179, 2005). Our main findings are: (1) when we apply conventional tests, such as the ADF and KPSS univariate tests without structural breaks, we find little evidence for stationarity; (2) when we apply the KPSS univariate test with multiple structural breaks, we find evidence of stationarity for 10 out of 15 countries; and (3) when we apply the KPSS panel test with multiple structural breaks, we find overwhelming evidence of panel stationarity of per capita real GDP for different panels of Asian countries.      

Flexible Fourier unit root test of unemployment for PIIGS countries

In this empirical study, we apply the flexible Fourier unit root test proposed by Enders and Lee (2012) to re-examine the hysteresis hypothesis of unemployment for PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries over the period from 1960 to 2011. We find that the Fourier unit root test has greater power than a linear method if the true data generating process of unemployment is a stationarity, non-linear process of an unknown form with structural change. The hysteresis in unemployment is confirmed for all PIIGS countries, with the exception of Portugal and Spain, when the Fourier unit root test is conducted.     

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

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.     

Discouraged workers in developed countries and added workers in developing countries? Unemployment rate and labour force participation

Changes in the unemployment rate can have differing impacts on the labour force participation rate depending on the strength of the added worker effect and the discouraged worker effect. This paper documents the differences in the relationship between the unemployment rate and the labour force participation rate across a panel of developing countries and OECD countries. We employ a system GMM approach to control for and to establish the bi-directional causality between unemployment and labour force participation. We find that the discouraged worker effect does dominate in developed countries, while dominance of the added worker effect in developing countries leads to an increase in labour force in the face of rising unemployment.     

Re-examination of convergence hypothesis among Indian states in panel stationarity testing framework with structural breaks

This article examines the conditional income convergence hypothesis for 17 major states in India for the period of 1960–2012. Univariate stationarity tests without structural breaks provide evidence against the convergence hypothesis. However, when two or more structural breaks are applied in per capita income series, the incomes of around 11–13 states are found to stochastically converge to the national average. This finding supports the convergence hypothesis for the panel as a whole after accounting for two data features, cross-sectional dependence and structural breaks in incomes, using a unified panel stationarity testing framework.