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Are Labour Force Participation Rates Non‐Stationary? Evidence From 130 Years For G7 Countries

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  • JAKOB MADSEN
  • VINOD MISHRA
  • RUSSELL SMYTH

Abstract

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.

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  • Jakob Madsen & Vinod Mishra & Russell Smyth, 2008. "Are Labour Force Participation Rates Non‐Stationary? Evidence From 130 Years For G7 Countries," Australian Economic Papers, Wiley Blackwell, vol. 47(2), pages 166-189, June.
    • Handle: RePEc:bla:ausecp:v:47:y:2008:i:2:p:166-189
    DOI: 10.1111/j.1467-8454.2008.00339.x
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    References listed on IDEAS

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    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    2. Julie L. Hotchkiss & John C. Robertson, 2006. "Asymmetric labor force participation decisions over the business cycle: evidence from U.S. microdata," FRB Atlanta Working Paper 2006-08, Federal Reserve Bank of Atlanta.
    3. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    4. Junsoo Lee & Mark C. Strazicich, 2013. "Minimum LM unit root test with one structural break," Economics Bulletin, AccessEcon, vol. 33(4), pages 2483-2492.
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    Cited by:

    1. Sibel Cengiz & Afsin Sahin, 2014. "Modelling nonlinear behavior of labor force participation rate by STAR: An application for Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 7(1), pages 113-127, April.
    2. Zeynel Abidin Ozdemir & Mehmet Balcilar & Aysit Tansel, 2012. "Are Labor Force Participation Rates Really Non-Stationary? Evidence from Three OECD Countries," Koç University-TUSIAD Economic Research Forum Working Papers 1223, Koc University-TUSIAD Economic Research Forum.
    3. Lee, Grace H.Y. & Parasnis, Jaai, 2014. "Discouraged workers in developed countries and added workers in developing countries? Unemployment rate and labour force participation," Economic Modelling, Elsevier, vol. 41(C), pages 90-98.
    4. Zeynel Abidin Ozdemir & Mehmet Balcilar & Aysit Tansel, 2013. "International Labour Force Participation Rates By Gender: Unit Root Or Structural Breaks?," Bulletin of Economic Research, Wiley Blackwell, vol. 65, pages 142-164, May.
    5. Iryna Lukianenko & Marianna Oliskevych, 2017. "Evidence of Asymmetries and Nonlinearity of Unemployment and Labour Force Participation Rate in Ukraine," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(5), pages 578-601.
    6. Landajo, Manuel & Presno, María José, 2010. "Nonparametric pseudo-Lagrange multiplier stationarity testing," MPRA Paper 25659, University Library of Munich, Germany.
    7. Paraskevi Salamaliki & Ioannis Venetis, 2014. "Smooth transition trends and labor force participation rates in the United States," Empirical Economics, Springer, vol. 46(2), pages 629-652, March.
    8. Zeynel Abidin Ozdemir & Mehmet Balcilar & Aysit Tansel, 2012. "Are Labor Force Participation Rates Really Non-Stationary? Evidence from Three OECD Countries," Koç University-TUSIAD Economic Research Forum Working Papers 1223, Koc University-TUSIAD Economic Research Forum.
    9. repec:prg:jnlpep:v:preprint:id:633:p:1-24 is not listed on IDEAS
    10. Mishra, Vinod & Smyth, Russell, 2010. "Female labor force participation and total fertility rates in the OECD: New evidence from panel cointegration and Granger causality testing," Journal of Economics and Business, Elsevier, vol. 62(1), pages 48-64, January.
    11. Aviral Tiwari, 2014. "Unemployment hysteresis in Australia: evidence using nonlinear and stationarity tests with breaks," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(2), pages 681-695, March.
    12. Kula Ferit & Aslan Alper, 2010. "Hysteresis vs. Natural Rate of Unemployment: One, the Other, or Both?," South East European Journal of Economics and Business, Sciendo, vol. 5(1), pages 91-94, April.

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