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Can the insider–outsider theory explain unemployment hysteresis in OECD countries?

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  • Dimitrios Bakas
  • Yousef Makhlouf

Abstract

Insider–outsider theory is often used as a basis for explaining the hysteretic behaviour of unemployment. Despite this, there is no empirical evidence about the validity of this theory on explaining the persistence of unemployment. This article addresses this gap, using various labour market proxies of insiders’ power for the OECD countries over 1960–2013 and employing panel unit root tests that exploit the information contained in these proxies. The results show that although the unemployment rate exhibits a pronounced hysteretic behaviour in OECD countries, this behaviour is reversed once we account for the insider–outsider proxies. Our findings thus validate the role of the insider–outsider theory as a key source of unemployment hysteresis.

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  • Dimitrios Bakas & Yousef Makhlouf, 2020. "Can the insider–outsider theory explain unemployment hysteresis in OECD countries?," Oxford Economic Papers, Oxford University Press, vol. 72(1), pages 149-163.
    • Handle: RePEc:oup:oxecpp:v:72:y:2020:i:1:p:149-163.
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    Cited by:

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    2. Fumitaka Furuoka, 2021. "Testing hysteresis in unemployment using artificial network (ANN) unit root test," Economics Bulletin, AccessEcon, vol. 41(3), pages 1947-1958.

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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