Are Unemployment Rates in OECD Countries Stationary? Evidence from Univariate and Panel Unit Root Tests

34 Pages Posted: 26 Dec 2015

See all articles by Naceur Khraief

Naceur Khraief

Laval University - Economics

Muhammad Qaiser Shahbaz

COMSATS Institute of Information Technology (CIIT)

Almas Heshmati

Sogang University; Jönköping International Business School

Muhammad Azam Azam

Universiti Utara Malaysia

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 et al. (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 results show that unemployment hysteresis hypothesis is strongly rejected when taking into account the cross-sectional and structural break assumptions. Thus, unemployment rates are expected to return back to their natural levels without executing any costly macroeconomic labour market policies by the OECD's governments.

Keywords: unemployment, unit root, labour market policy, OECD

JEL Classification: C23, E24, J48, J64, N30

Suggested Citation

Khraief, Naceur and Shahbaz, Muhammad Qaiser and Heshmati, Almas and Azam, Muhammad Azam, Are Unemployment Rates in OECD Countries Stationary? Evidence from Univariate and Panel Unit Root Tests. IZA Discussion Paper No. 9571, Available at SSRN: https://ssrn.com/abstract=2708384 or http://dx.doi.org/10.2139/ssrn.2708384

Naceur Khraief (Contact Author)

Laval University - Economics ( email )

Quebec G1K 7P4
Canada

Muhammad Qaiser Shahbaz

COMSATS Institute of Information Technology (CIIT) ( email )

Park Road
Chak Shahzad
Islamabad, North-West Frontier Province 44000
Pakistan

Almas Heshmati

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)
0082-2-705-8771 (Phone)

HOME PAGE: http://www.sogang.ac.kr/english/academic/03_under_0123.html

Jönköping International Business School ( email )

Jönköping, 551 11
Sweden

Muhammad Azam Azam

Universiti Utara Malaysia ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
83
Abstract Views
640
rank
406,090
PlumX Metrics