Are unemployment rates in OECD countries stationary? Evidence from univariate and panel unit root tests |
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| Institution: | 1. Tunis Business School, Université de Tunis, Tunisia;2. Montpellier Business School, Montpellier, France;3. Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan;4. Department of Economics, Sogang University, Seoul, South Korea;5. Department of Economics, Faculty of Business and Economics, Abdul Wali Khan University Mardan, KP, Pakistan;1. Research Center of the Central China for Economic and Social Development, Nanchang University, 330031 Nanchang, PR China;2. School of Economics and Management, Nanchang University, 330031 Nanchang, PR China;3. Business School, Hunan University, 410082 Changsha, PR China;1. Département des sciences administratives, Université du Québec (Outaouais), Campus St. Jérôme, 5 rue St Joseph, St Jérôme, Québec J7Z 0B7, Canada;2. Université du Québec (Montréal), École des sciences de la gestion, 315 Ste.-Catherine est, R-2915, Montréal, Québec H2X 3X2, Canada;3. Chaire d’information financière et organisationnelle (Université du Québec à Montréal), and Université du Québec en Outaouais, Canada;1. Department of Business Administration, Fu Jen Catholic University, No. 510, Zhongzheng Rd., Xinzhuang Dist., New Taipei City 24205, Taiwan;2. Department of Business Administration, National Chin-Yi University of Technology, No. 57, Sec. 2, Zhongshan Rd., Taiping Dist., Taichung 41170, Taiwan;1. ISEG-UL – Universidade de Lisboa, REM – Research in Economics and Mathematics, UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal;2. ISEG-UL – Universidade de Lisboa, Portugal;1. Tunis Business School, Université de Tunis, PO. Box n°65, Bir El Kassaa, 2059, Ben Arous, Tunisia;2. Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan;3. Centre for Development Studies (CDS), Prasanth Nagar, Ulloor, Trivandrum 695011, Kerala, India;4. Faculty of Management Universiti Teknologi Malaysia, 81310 Johor Bahru, Johor, Malaysia |
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| 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, Leybourne, and Xiao (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 empirical results show that unemployment hysteresis hypothesis is strongly rejected, when taking into account the cross-sectional and structural break assumptions. Thus, unemployment rate is expected to return back to their natural levels without executing any costly macroeconomic labour market policies by the OECD’s governments. |
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| Keywords: | Unemployment Unit root Labour market policy OECD |
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