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Transitory shock or structural shift? The impact of the early 1980s recession on British regional unemployment

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  • Michelle Baddeley
  • Ron Martin
  • Peter Tyler

Abstract

This paper examines the impact of the early 1980s recession on regional unemployment in Britain. More specifically, it seeks to evaluate the hypothesis that this recessionary shock was so severe that it caused an upward structural shift in the underlying mean unemployment rates of the regions. This proposition is analysed using Dickey — Fuller tests for difference versus trend stationarity, and the augmented structural shift and trend break time-series models developed by Perron. The results suggest that the apparent stochastic non-stationarity in regional unemployment over the period 1965 - 95 is in fact due to an upward structural shift in regional mean unemployment rates in 1980. Furthermore, the nature of this shift appears to have differed as between the northern and southern regions of the country.

Suggested Citation

  • Michelle Baddeley & Ron Martin & Peter Tyler, 1998. "Transitory shock or structural shift? The impact of the early 1980s recession on British regional unemployment," Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 19-30.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:1:p:19-30
    DOI: 10.1080/000368498326100
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    References listed on IDEAS

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    1. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 237-250, July.
    2. Ron Martin, 1997. "Regional Unemployment Disparities and their Dynamics," Regional Studies, Taylor & Francis Journals, vol. 31(3), pages 237-252.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. P G Chapman, "undated". "The Dynamics Of Regional Unemployment In The Uk," Dundee Discussion Papers in Economics 007, Economic Studies, University of Dundee.
    5. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    6. By DAVID GREASLEY & LES OXLEY, 1996. "Discontinuities in competitiveness: the impact of the First World War on British industry," Economic History Review, Economic History Society, vol. 49(1), pages 82-100, February.
    7. Stephen T. Marston, 1985. "Two Views of the Geographic Distribution of Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 57-79.
    8. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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    Cited by:

    1. Maria Francesca Cracolici & Miranda Cuffaro & Peter Nijkamp, 2007. "Geographical Distribution of Unemployment: An Analysis of Provincial Differences in Italy," Growth and Change, Wiley Blackwell, vol. 38(4), pages 649-670, December.
    2. Vicente Rios Ibañez, 2014. "What drives regional unemployment convergence?," ERSA conference papers ersa14p924, European Regional Science Association.
    3. Galiani, Sebastian & Lamarche, Carlos & Porto, Alberto & Sosa-Escudero, Walter, 2005. "Persistence and regional disparities in unemployment (Argentina 1980-1997)," Regional Science and Urban Economics, Elsevier, vol. 35(4), pages 375-394, July.
    4. N. Groenewold & A.J. Hagger, 2008. "Regional Unemployment Disparities: An Evaluation Of Policy Measures," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 355-375, December.
    5. Tolga Omay & Muhammad Shahbaz & Chris Stewart, 2021. "Is there really hysteresis in the OECD unemployment rates? New evidence using a Fourier panel unit root test," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(4), pages 875-901, November.
    6. 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.
    7. Sarantis LOLOS & Evangelia PAPAPETROU, 2012. "Unemployment disparities and persistence Assessing the evidence from Greek regions, 1981-2008," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 12(1), pages 69-90.
    8. Hsu, Pao-Peng, 2017. "Examination of Taiwan's travel and tourism market cycle through a two-period Markov regime-switching model," Tourism Management, Elsevier, vol. 63(C), pages 201-208.
    9. Elhorst, J. Paul, 2000. "The Mystery Of Regional Unemployment Differentialsa Survey Of Theoretical And Empirical Explanations," ERSA conference papers ersa00p60, European Regional Science Association.
    10. Tangian, Andranik S., 2005. "Composite indicator of German regional policy and its use for optimizing subsidies to regional labour markets," WSI Working Papers 138, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    11. Nicolaas Groenewold & A.J. Hagger, 2004. "Regional Unemployment Disparities: Can Fiscal Policy Help?," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 7(1), pages 13-37, March.
    12. repec:dgr:rugsom:00c06 is not listed on IDEAS

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