Unemployment Hysteresis In Turkey And 15 Eu Countries: A Panel Approach

  • Meliha Ener Department of Economics, Biga Faculty of Economics and Administrative Science, Canakkale Onsekiz Mart University, Biga 17200
  • Feyza Arica Department of Economics, Biga Faculty of Economics and Administrative Science, Canakkale Onsekiz Mart University, Biga 17200
Keywords: Structural break, unemployment, Cross-section dependency, panel unit root tests

Abstract

This study investigates empirically the presence of unemployment hysteresis in 16 countries which consist Turkey and fifteen EU countries, applying annual unemployment rates covering 1985-2005 periods. Hysteresis is tested by using panel unit root tests, which allow for structural breaks. We test whether unemployment rates are stationary by using first generation, second generation test and panel unit root test based on structural break advanced by Carrion-i Silvestre et al. (2005) as a final point. We find series as a stationary process with structural breaks according to Carrion-i Silvestre et al.(2005) test, while we find series as unit root process with first and second generation panel unit root tests. Thus, according to the Carrion-i Silvestre et al. (2005) test, we find evidence absence of hysteresis in countries analyzed. So, there still exists a unique natural rate of unemployment to which the economy eventually will converge.

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Published
2011-03-10
Section
Articles