HYSTERESIS HYPOTHESIS IN UNEMPLOYMENT AND LABOUR FORCE PARTICIPATION RATES: EVIDENCE FROM AUSTRALIAN STATES AND TERRITORIES *

This article simultaneously investigates the hysteresis hypothesis of unemployment and labour force participation using regional level data in Australia. The conventional univariate and panel unit root tests indicate that the hysteresis hypothesis cannot be rejected for most of the regions in Australia. To further confirm if the hysteresis finding in unemployment and labour force participation results from not considering structural breaks. We employ a panel stationarity test recently developed by Carrion‐i‐Silvestre et al. (2005 ), which considers multiple structural breaks and cross‐sectional dependence. The test results lend support for unemployment hysteresis and participation regime‐wise stationarity. Accordingly, the findings imply that a temporary shock may have permanent effects on the unemployment rate but not on labour force participation in Australia and thus call for policies aimed at improving the adjustment mechanism in unemployment.     

Labor Force Participation and Educational Attainment in the United States

The objectives of this paper are twofold. Aggregate labor force participation rates in the United States are described focusing on educational attainment. A model is developed for decomposing aggregate labor force participation rates for men and women from 1994 to 2014 from a unique perspective by focusing on changes in educational attainment and on changes in the labor force behavior. The findings presented here indicate that men’s aggregate labor force participation rates declined during the 20-year period at all levels of educational attainment, due primarily to changes in population shares. A different picture emerges regarding women. For women with high school or some college or associate degree, it was changes in labor force behavior that dominated changing aggregate labor force participation rates. For women with the lowest and highest levels of educational attainment, less than high school or at least a baccalaureate degree, it was changes in their population shares that drove changes in aggregate labor force participation rates.     

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.     

SKILL BIAS AND EMPLOYMENT FRICTIONS IN THE U.S. LABOR MARKET 1970–1990*

This article studies simultaneous changes in four labor market variables: the unemployment rates for college and high‐school graduates, the education wage premium, and the level of college participation. It develops an equilibrium search and matching model of the labor market where education is endogenously determined. Then the model is used to investigate quantitatively whether the change in the above labor market variables from 1970 to 1990 in the United States can be traced to changes in the environment. A skill‐biased change in technology together with an increase in employment frictions can explain much of the observed variation in these variables.     

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.     

Unemployment persistence in OECD countries after the Great Recession

The 2008 economic downturn in the United States resulted in a wave of contractionary effects across many OECD countries. This paper investigates the pattern of the unemployment persistence in the United States and other 28 OECD countries before and after the Great Recession. To detect possible changes in the pattern of unemployment persistence, we employ a mean bias-corrected estimation of the persistence parameter with a rolling window of five years. In addition, we estimate the most likely date of change in the trend function of unemployment to test whether there was any significant change in the pattern of unemployment persistence after the Great Recession. We find significant evidence of a structural break and hysteresis in unemployment rates, with a persistence parameter close to unity, across the United States and other 28 OECD countries. Besides, bootstrap permutation tests show that all half-lives and impulse response functions have significantly changed after the Great Recession. Therefore, our findings call for structural reforms aimed at improving labor market performance, to prevent upward shifts in unemployment across OECD countries from becoming permanent.     

Resource constraints and educational attainment in developing countries: Colombia 1945–2005

In this paper, I investigate the extent to which secondary and higher education supply constraints affected aggregate educational attainment in Colombia for cohorts born between 1945 and 1981. As was the case in many other countries after World War II, in Colombia, industrialization, urbanization and rapid population growth increased the demand for education and the return to schooling. Although educational expenditures from the central government and the states increased after the 1950s, secondary and tertiary schools' per-pupil inputs declined. Using variation in cohort size within states and over time to proxy for changes in education demand, I find that for cohorts born after 1945, a 10% increase in cohort size reduced high school completion rate by 3%, the college completion rate by 4% and average years of schooling by 1%. Compared to women's educational attainment rates, changes in cohort size had greater negative effects on men's rates.     

A Reexamination of the Time Path of Wage Differentials in Taiwan

Contrary to the conclusions of a recent paper by Chen and Hsu (Review of Development Economics, vol. 5, 2001, pp. 336–54), wage inequality and returns to college‐educated workers have risen in Taiwan since 1980. Government policies which have caused rapid expansion of the supply of new college graduates have depressed returns for only the youngest cohorts of college graduates. Older cohorts of college graduates experienced rising returns, as have college graduates as a whole. Young college‐educated women's returns fell more and older college‐educated women's returns rose more relative to their male counterparts. Consequently, the rising share of women in the labor force helped amplify these trends. Changing trade patterns have tended to increase labor demand in sectors that use educated labor more intensively, helping to raise returns to skill. However, in contrast to western economies, rising capital intensity does not appear to have accelerated the pay gap by skill in Taiwan.     

Search for a theory of organized crimes

Casual empirical observations reveal no systematic relationship between the overall crime rate and organized criminal activity. We develop a search-theoretic framework to study the interactions not only between formal labor and crime sectors but also between individual and organized crimes. In equilibrium, individual and organized criminals face different arrest risks, success rates, reward structures and outside options. We characterize agents' “occupational choices,” the gang's hierarchical structure and the responses of unemployment, crime rates and crime composition to changes in labor-market conditions and crime-deterrence policies. We further assess the effectiveness of arrest versus punishment policies in deterring individual and organized crimes.     

Unemployment dispersion and the allocative efficiency of the labor market

An idea that seems to gain recurrent popularity in the economics profession is that, because of technological change, changes in consumer demand, skill mismatches, and the like, the unemployed tend to become concentrated or trapped in particular geographic areas and that for these reasons unemployment rates have grown more disparate over time. This paper examines the theoretical conditions necessary for the above argument to hold and shows that such conditions are not consistent with the notion of a competitive labor market. The paper then examines various measures of unemployment-rate dispersion in order to determine whether or not unemployment rates have indeed drifted further apart over time. The empirical evidence presented indicates unequivocally that geographic unemployment rates are neither more nor less dispersed now than they were twenty years ago. The results, therefore, suggest that the competitive view of the labor market is appropriate and that the hypothesis that unemployment rates have become more dispersed over time because of structural imperfections in the labor market should be rejected.     

Unemployment Invariance

Abstract. This paper provides a critique of the ‘unemployment invariance hypothesis’, according to which the behavior of the labor market, by itself, ensures that the long‐run unemployment rate is independent of the size of the capital stock, productivity and the labor force. In the context of an endogenous growth model, we show that the labor market alone need not contain all the equilibrating mechanisms to ensure unemployment invariance; in particular, other markets may perform part of the equilibrating process as well. By implication, policies that raise the growth path of capital or increase the effective working‐age population may influence the long‐run unemployment rate.     

Educational attainment and cohort size

"We argue that the postwar baby boom [in the United States] caused substantial fluctuations in both the economic rewards to education and educational attainment over the last 3 decades. If substitutability between young and old workers diminishes with education, the present value of lifetime earnings for a boom cohort is depressed more for highly educated workers, reducing incentives for educational attainment. The opposite is true for pre- and postboom cohorts. The diminishing substitutability hypothesis explains the declines in both the returns to college and college completion rates in the 1970s and predicts a substantial increase in educational attainment for postboomers."     

UNEMPLOYMENT, HYSTERESIS AND TRANSITION

In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear ‘Hysteresis’ as described by the presence of unit roots in unemployment as in most empirical research on this area. Given that this is potentially a narrow definition, we also take into account the existence of structural breaks and nonlinear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria, that is, if it remains locked into a new level whenever some structural change or sufficiently large shock occurs. Our findings show that, in general, we can reject the unit‐root hypothesis after controlling for structural changes and business‐cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria.     

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.     

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.     

The labor market effects of skill-biased technological change in Malaysia

During the last half-century, the evolution of educational attainment in Malaysia has been spectacular, and the current enrollment rates suggest that this progression will continue. Such a transformation of the labor skill composition should bring about macroeconomic effects such as wage compression, sectoral shifts and high skill unemployment, unless compensatory mechanisms exist. Relying on decomposition techniques, we argue that skill biased technological change (SBTC) occurred in Malaysia in recent years, and permitted unemployment figures to remain low and skill premia not to sink. We also develop a dynamic general equilibrium model, simulating the absence of SBTC and limit the number of admissions to higher education. The results are fed to a microsimulation module. They show that the reduction in wage inequalities could have been substantially more important had SBTC not been present. Furthermore, they suggest that the open-door higher education policy has contributed heavily to a reduction in wage inequalities.     

Effect of labor market policies on unemployment when firms adapt their recruitment strategy

Firms conduct interviews to select who to hire. Their recruitment strategies affect not only the hiring rate but also job destruction rate as more interviews increase the chances of finding the right worker for the job; a link mostly overlooked in the literature. I model this recruitment behavior and investigate the effects of labor market policies on unemployment. These policies change the value of hiring the right worker, altering firms' incentives to conduct interviews. Policies further affect job creation and destruction when firms adapt their recruitment strategies. Net effect of a policy on unemployment depends on the magnitude of change in job creation versus destruction. Qualitative analysis reveals that the effect of a policy on unemployment is mostly weakened with the introduction of firms' recruitment behavior to the model. Firing taxes still increase unemployment, albeit at a lower rate. The effect of hiring subsidies on unemployment is even reversed: Unemployment increases with hiring subsidies if firms adapt. Minimum wage and unemployment insurance policies are also analyzed.     

变革中的就业环境与中国大学生就业

本文总结了国内外有关大学生就业问题的研究文献 ,通过问卷调查、统计分析、深度访谈等研究方法 ,从就业制度的演变、大学生劳动力市场的供求变动、个人就业意愿和行为、用人单位对大学生就业的期望和国外有关大学生就业的政策和措施等方面 ,对我国当前大学生就业困难的问题进行了分析和探讨。文章认为 ,目前大学生就业确有困难的表现。不过 ,由于初次就业率统计指标设计的局限 ,客观上也夸大了这种困难的程度。文章对缓解劳动力市场上大学生就业困难 ,特别是降低结构性失业和摩擦性失业 ,提出了一些政策建议。     

The Effects of Immigration on Regional Unemployment Rates in The Netherlands

The impact of immigration on the change in the unemployment rate in the Netherlands is analyzed using panel data from 26 labor market regions from 1996 through 2003. This study measures immigration through the year-to-year change in the foreign population, paying particular attention to immigrants of non-Western origin. Other variables controlling the composition of the local labor market include: occupation shares, the fractions of workers employed in high- and low-skilled jobs, the fractions of female workers, part-time employees, labor force participants over the age of 55, educational attainment shares, and population density. The ordinary least squares (OLS) results indicate a change in the foreign population in the labor force led to a statistically significant increase in the upward volatility of Dutch unemployment rates while the change in the non-Western share had no significant effect.