Persistence in U.S. State Unemployment Rates

Romero‐Ávila and Usabiaga (2007) find that many U.S. state unemployment rates are stationary, a result at odds with the traditional view that unemployment rates are path‐dependent and subject to shocks that have permanent effects. They base their results on multivariate unit root tests that provide for two breaks in mean. This note extends the analysis to directly examine whether the series were fractionally integrated. When no allowance is made for breaking means, the results suggest evidence in favor of hysteresis, an outcome that generally applies when one break in mean is considered. Allowing for two breaks demonstrates that the evidence in favor of the natural rate and the hysteresis hypotheses is temporally sensitive.     

Uncovering the Truth about Chinese Urban Unemployment Rates: 2005–2012

Using China Urban Household Survey data from 2005 to 2012, the present paper examines the changing pattern of China's urban unemployment rates. The paper shows that the annual urban unemployment rates during 2005–2012 averaged approximately 8.5 percent, as opposed to the official figure of approximately 4.1 percent, and despite the significant slowdown of GDP growth since 2008, the urban unemployment rates still exhibit a downward trend. This paper finds that continuous job creation in both the tertiary and the non‐state sectors helps explain the decreasing trend in unemployment rates. Meanwhile, the downward trend of the unemployment rates could also be explained by the fact that both the secondary industry and the state‐owned sector have destructed fewer jobs because of the execution of macroeconomic stimulus policies since 2008.     

Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test

Mixed results for unemployment dynamics are reported in many studies using linear or non-linear unit root tests. A possible explanation is that the literature focuses on the average behavior of unemployment and assumes that the speed of adjustment towards its long-run equilibrium is constant, regardless of the magnitudes and signs of shocks. This paper seeks to re-examine the dynamics of the unemployment rates in terms of shocks for 12 OECD countries. A newly developed quantile unit root test by Galvao (2009) is applied to show potential asymmetric responses of unemployment to shocks over various quantiles, depending on the size and sign of the shocks that hit the unemployment rate. Our results suggest that generally, the unemployment rates are not only stationary but also exhibit obvious asymmetric behavior, in the sense that in the lower quantiles, negative shocks with large absolute value tend to induce faster speed of adjustment towards the long-run equilibrium, while in the upper quantiles, large positive shocks do not, and hysteresis exists. These findings can explain why unemployment rates display the behavior of fast rises and slow falls.     

Using Unemployment Rates as Instruments to Estimate Returns to Schooling

I use state unemployment rates during a person's teenage years to estimate the returns to schooling. A higher unemployment rate reduces the opportunity costs of attending school. Using the same 1980 Census data set that Angrist and Krueger (1991) use, I also estimate returns to schooling with a modified version of their quarter‐of‐birth instrument. The estimates from the two‐stage least squares (2SLS) model using the unemployment rate and the model using the quarter‐of‐birth instruments are almost identical. In addition, these 2SLS estimates are larger than the ordinary least squares (OLS) estimates, supporting this counterintuitive, yet prevalent, result in the literature.     

On (Not) Closing the Gaps: The Evolution of National and Regional Unemployment Rates by Race and Ethnicity

This paper conducts stationarity tests for levels and ratios of national and regional unemployment rates by race and ethnicity. Results indicate that both unemployment rates and ratios for the total population and for subgroups by race, ethnicity and region are stationary around changing means. The black/white unemployment ratio has increased on average and the Hispanic/white unemployment ratio has decreased on average. Results are compared across regions of the US.     

Gross worker flows and unemployment dynamics in Japan

This paper studies the dynamics of worker flows in Japan between 1980 and 2009. We construct gross worker flows data using the monthly Labor Force Survey. Our data enables us to examine the size and cyclical patterns of the flows and transition rates between employment, unemployment, and not being-in-the labor force. We find that the cyclical pattern of worker flows is similar to that found in other countries; however, worker flows in Japan are generally smaller than those in the US and European countries. We also decompose changes in unemployment into contributions from unemployment inflow and outflow rates. We find that both inflow and outflow rates significantly affect variations in unemployment.     

Negishi–Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy

This paper introduces efficiency wages designed to provide workers with incentives to make appropriate effort levels, and involuntary unemployment, along the pioneering lines of Negishi (1979) , Solow (1979) and Shapiro and Stiglitz (1984) , in a dynamic model involving heterogeneous agents and financial constraints as in Woodford (1986) and Grandmont et al. (1998) . Effort varies continuously while there is unemployment insurance funded out of taxation of labor incomes. Increasing unemployment insurance is beneficial to employment along the deterministic stationary state, and can even in some cases lead to a Pareto welfare improvement for all agents, through general equilibrium effects, by generating higher individual real labour incomes, hence larger consumptions of employed and unemployed workers, and thus higher production. In contrast, the local (in)determinacy properties of the stationary state are opposite to those obtained in the competitive specification of the model: local determinacy (indeterminacy) occurs for elasticities of capital-efficient labor substitution lower (larger) than a quite small bound. Increasing unemployment insurance is more likely to lead to local indeterminacy and, therefore, to generate dynamic inefficiencies due to the corresponding expectations coordination failures.     

The Effect of Local Area Unemployment on Compensating Wage Differentials for Injury Risk

Compensating wage differential (CWD) theory assumes that workers can always find a job without undesired characteristics, which forces firms with disamenities to pay a CWD. However, a simple theoretical variation of standard CWD theory shows that if there is a probability of job loss due to involuntary unemployment, the CWD is lower. When this probability is proxied by local unemployment rates, we find a downward bias in typical estimated CWDs using cross‐sectional data that span many local labor markets. Estimates from the Current Population Survey data show that the bias can be quite large, which in turn impacts the implicit value of injury estimates.     

Unemployment of Non-Western Immigrants in the Great Recession

This paper examines whether unemployment of non-western immigrant workers in the Netherlands was disproportionally affected by the Great Recession. We analyze unemployment data covering the period November 2007–February 2013 finding that the Great Recession affected unemployment rates of non-western immigrant workers in absolute terms more than unemployment rates of native workers. However, in relative terms there is not much of a difference. We also find that the sensitivity of individual job finding rates to the aggregate state of the labor market does not differ between natives and non-western immigrants. In combination our findings suggest that the Great Recession did not have a different impact on the unemployment of non-westerns immigrants and native Dutch.     

Unemployment dynamics in the UK

This paper examines the determinants of unemployment in termsof its statistical correlates. At one extreme unemployment hasbeen viewed as highly trended in the post war period, with theimplication that equilibrium unemployment has followed a broadlysimilar path. Alternatively, unemployment can be viewed as ahighly persistent series that departs for long periods froma more stable equilibria. This paper reports on reduced formmodels of unemployment and suggests that many exogenous variablesthat have typically been associated with movements in equilibriumunemployment have little explanatory power. Instead, unemploymentmay be characterised as a near unit root process driven by amixture of mean shifting I(0) variables.     

Youth unemployment in Europe – business cycle and institutional effects

In the aftermath of the Great Recession 2008/2009 European youth unemployment rose sharply from below 4.2 m in 2007 to more than 5.6 m young people under 25 unemployed in the EU28 countries in 2013. The youth unemployment rate expanded from 15.5 in 2007 to 25.5 in 2013. Beyond the consequences for individuals youth unemployment as a mass phenomenon is potentially menacing the stability of democratic societies. Hence there are good reasons to fight youth unemployment by any means. The paper analyses the specific structure and causes of youth unemployment. Although youth unemployment is also influenced by individual factors like insufficient qualification, we show that country-specific factors - institutions, traditions and characteristic structures - are of high importance in explaining the huge disparities between European countries. Using panel data estimates with specific country and time fixed effects we show that especially the Mediterranean countries responded to the economic downturn in a specific way. However, the high correlation of changes in the youth and adult unemployment rates across countries points to the fact that not only structural factors but also business cycle effects are important for explaining the sharp increase in the youth unemployment rate in Europe. The rise in joblessness is in fact closely related to macroeconomic slackness. Therefore, we argue that a two-handed approach combining institutional improvements with growth stimulating measures is needed to overcome the problem.     

PURCHASING POWER PARITY IN AFRICAN COUNTRIES: FURTHER EVIDENCE FROM FOURIER UNIT ROOT TESTS BASED ON LINEAR AND NONLINEAR MODELS

This paper examines the validity of purchasing power parity hypothesis for 33 African countries using recently developed Fourier unit root tests by Christopoulos and León‐Ledesma that account for the existence of multiple breaks in the real exchange rates. The results support the evidence of the PPP in 20 countries, showing that most of the real exchange rates in the selected countries are characterised by linear or nonlinear stationary around multiple temporary mean changes.     

The Unintended Consequences of Education Policies on South African Participation and Unemployment

In the late 1990s, the South African Department of Education implemented two policies that were meant to reduce the large number of over‐aged learners in the school system: schools were no longer allowed to accept students who were more than two years older than the correct grade age, and students could not be held back more than once in each of four schooling phases. Our analysis uses school administrative data and household survey data to show that these policies coincided with a decrease in school enrolment of at least 400,000 and possibly more than 900,000 learners. These policies appear to have pushed many students into the labour market at earlier ages than was observed for previous generations, which explains much of the sudden increase in labour force participation and unemployment during this period. However, since these individuals would probably have entered the labour market sooner if not for their poor employment prospects, we argue that the resulting increase in unemployment signifies a more accurate reflection of disguised unemployment that already existed in the mid‐1990s rather than a deterioration of labour market conditions.     

Unit Root Tests,Persistence, and the Unemployment Rate of the U.S. States

In this paper, we investigate the existence of infrequent shocks and the degree of persistence of U.S. state unemployment over the period 1976-2004. We first apply individual Lagrange multiplier (LM) unit root tests and fail to reject the hysteresis hypothesis in forty states. When two changes in level are incorporated, we again fail to reject the hysteresis hypothesis in forty states. Since individual unit root tests normally lack power, we employ the recently developed panel LM unit root tests with up to two changes in level. Only in this case are we able to reject the joint unit root hypothesis in favor of regime stationarity. Computation of half-lives through impulse-response functions indicates the high degree of persistence of U.S. state unemployment. These results contrast with the common belief among scholars that U.S. state unemployment is closer to the natural rate paradigm than to the hysteresis paradigm.     

Race and sex differences in the effects of early unemployment on wages

Youth unemployment is shown to have significant depressing effects on black long-run earnings over and above the loss in work experience which accompanies unemployment. Estimates were similar for men and women, showing that for each week of unemployment black youth incurred early in their work careers, wages were reduced by about one half a percentage point five years later. A six month bout with unemployment in 1979 was related to a 13 percent drop in wage rates five years later. For white youth, joblessness, but not unemployment per se, had a significant negative impact on subsequent wage rates.     

TAKING THE PUZZLE OUT OF THE PURCHASING POWER PARITY PUZZLE: AN APPLICATION IN RESPECT OF SOUTH AFRICA

This paper discusses two versions of the purchasing power parity puzzle. It presents the results of nonlinearity and nonstationarity tests in respect of the real exchange rates of the rand. It is found that the rand real exchange rate behaviour tends to be nonlinear and stationary in a majority of cases in the sample. This suggests that for the majority of the currencies in the sample, the real exchange rates of the rand are mean‐reverting, implying that the purchasing power parity relation holds in a nonlinear manner.     

Changing Perceptions of Maturity Mismatch in the U.S. Banking System: Evidence from Equity Markets

We use the sensitivity of bank holding company equity returns to market interest rates as an indicator of perceived maturity mismatch. Based on data from 1990 to 2009, there is only weak evidence that market participants perceived banks to be effectively short‐funded. However, looking at 1990–1996 and 1997–2009 subsamples separately, our results suggest that U.S. commercial banks were perceived as short‐funded during the earlier time period but not the later. During this time of changing perceptions of maturity mismatch, banks were increasing their holdings of real estate loans as a share of total assets. We present evidence that, subsequent to 1996, market participants perceived real estate loans as having become effectively shorter‐term.     

Urban unemployment,rural labor monopsony,and optimal policies

Using a dual-economy model with urban unemployment and rural labor monopsony, this paper shows that the first-best optimum can be achieved by different rates of wage subsidies, in which the subsidy to rural wage is adjusted upward in accordance with the amount of exploitation by rural producers. It is also shown that the policy of either import substitution or export promotion has merit, depending on whether the distortion of urban unemployment exceeds that of rural labor monopsony or not. The theoretical results obtained in this paper justify the observation of the policies adopted in many countries.     

The Equilibrium Rate of Unemployment in the Netherlands

The rise in unemployment in the 1970s and its subsequent persistence have challenged the conventional wisdom embodied in the standard Phillips curve, namely that equilibrium unemployment is fairly constant over time. This paper attempts to explain the apparent non-constancy of equilibrium unemployment by developing and estimating a structural model in which equilibrium unemployment is endogenous and results from the interactions of wage bargaining and the price and employment determination of firms. We find that the three major determinants of equilibrium unemployment are tax rates, the replacement rate and the real interest rate. The rise in unemployment in the 1970s and early 1980s was mainly due to a rise in the first two factors. That equilibrium unemployment remained high when tax rates and the replacement rate were reduced in the 1980s and early 1990s is attributed to the rise in real interest rates during this period.     

中国城市失业率--从出生组分析经济转型的影响

中国城市的失业率存在显著的差异,如果比较不同的教育群体,不同性别和不同出生组别的话。相对而言,在所有教育组内,年轻群组内存在比年老群组更高的失业率。年老群组在他们劳动生涯内,失业率长期维持在接近零的水平。然而对于年轻群组,情况大相径庭:失业率差异增大。对于年轻群组而言,失业率和教育程度呈现反向关系:大学以上教育依然维持最低失业率水平。性别的失业率差距随着教育程度的降低而扩大:最大差距出现在低等教育组。除此以外,出生组别之间的失业率差异随着年龄增加而扩大,而且这种差距也是在低等教育女性组最为明显,这也意味着低等教育女性在劳动力市场的需求处于极为不利的地位。我们对于这种群组之间的失业率差距提供了解释:国有企业高度集中导致了非常低的失业率,而经济转型过程中国有企业比重的下降伴随着劳动力市场自由化程度的提高, 带来了较高的失业率。