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Hysteresis in European labour market

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  • Furuoka, Fumitaka

Abstract

This paper revisits the hysteresis and unemployment problem in Europe by using new data and some innovative methods. Blanchard and Summers are among first researchers to detect the existence of unemployment hysteresis and to attribute the hysteresis effects to the European unemployment problem (Blanchard and Summers, 1986). Despite numerous empirical inquiries on this topic, researchers have not decided whether the hysteresis would exist in unemployment. Thus, this paper chooses five countries in the region, namely France, Germany, Italy, Spain and United Kingdom, and examines systematically their unemployment behaviours by employing several different econometric tests, such as the SUR-ADF test (Breuer et al., 2002), the Fourier ADF (FADF) test (Enders and Lee, 2012) and the SUR-Fourier ADF (SUR-FADF) test. These four tests produced consistent findings that unemployment rates in these five European countries could be described as the unit root process. In other words, these different unit root tests uniformly detected the existence of hysteresis in these five countries in line with the hysteresis hypothesis.

Suggested Citation

  • Furuoka, Fumitaka, 2014. "Hysteresis in European labour market," MPRA Paper 60946, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60946
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    References listed on IDEAS

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    1. Fumitaka FURUOKA, 2014. "Does Hysteresis Exist in Unemployment? New Findings from Fourteen Regions of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 59-78, February.
    2. Chang, Tsangyao, 2011. "Hysteresis in unemployment for 17 OECD countries: Stationary test with a Fourier function," Economic Modelling, Elsevier, vol. 28(5), pages 2208-2214, September.
    3. Fosten, Jack & Ghoshray, Atanu, 2011. "Dynamic persistence in the unemployment rate of OECD countries," Economic Modelling, Elsevier, vol. 28(3), pages 948-954, May.
    4. Mariam Camarero & Josep Lluís Carrion‐i‐Silvestre & Cecilio Tamarit, 2006. "Testing for Hysteresis in Unemployment in OECD Countries: New Evidence using Stationarity Panel Tests with Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(2), pages 167-182, April.
    5. 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.
    6. Enders, Walter & Lee, Junsoo, 2012. "The flexible Fourier form and Dickey–Fuller type unit root tests," Economics Letters, Elsevier, vol. 117(1), pages 196-199.
    7. repec:bla:obuest:v:64:y:2002:i:5:p:527-46 is not listed on IDEAS
    8. Tsangyao Chang & Kuei-Chiu Lee & Chien-Chung Nieh & Ching-Chun Wei, 2005. "An empirical note on testing hysteresis in unemployment for ten European countries: panel SURADF approach," Applied Economics Letters, Taylor & Francis Journals, vol. 12(14), pages 881-886.
    9. Jun‐De Lee & Chien‐Chiang Lee & Chun‐Ping Chang, 2009. "Hysteresis In Unemployment Revisited: Evidence From Panel Lm Unit Root Tests With Heterogeneous Structural Breaks," Bulletin of Economic Research, Wiley Blackwell, vol. 61(4), pages 325-334, October.
    10. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    11. Cheng-Hsun Lin & Nai-Fong Kuo & Cheng-Da Yuan, 2008. "Nonlinear vs. nonstationary of hysteresis in unemployment: evidence from OECD economies," Applied Economics Letters, Taylor & Francis Journals, vol. 15(11), pages 905-909.
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    15. Suleyman Bolat & Aviral Kumar Tiwari & Ahmet Utku Erdayi, 2014. "Unemployment hysteresis in the Eurozone area: evidences from nonlinear heterogeneous panel unit root test," Applied Economics Letters, Taylor & Francis Journals, vol. 21(8), pages 536-540, May.
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    Cited by:

    1. Omay, Tolga & Shahbaz, Muhammad & Stewart, Chris, 2021. "Is There Really Hysteresis in OECD Countries’ Unemployment Rates? New Evidence Using a Fourier Panel Unit Root Test," MPRA Paper 107691, University Library of Munich, Germany, revised 10 May 2021.

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    More about this item

    Keywords

    Unemployment hysteresis; Europe; unit root; nonlinear;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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