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Testing for hysteresis : unemployment persistence and wage adjustment

Author

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  • Fève, Patrick
  • Hénin, Pierre-Yves
  • Jolivaldt, Philippe

Abstract

This paper proposes a new testing strategy for unemployment hysteris as the joint restriction of a unit-root in the unemployment rate and no-effect of the level of unemployment in the Phillips wage equation. The relevant test statistics are derived when this joint restriction is imposed during estimation and when a sequential two steps testing strategy is adopted. The empirical application leads to rejection of the null hypothesis of wage hysteresis for most of our sample of OECD countries. We get an interesting contrast between the "core European countries" -rejecting hysteresis, but not unemployment non-stationarity- and the scandinavian ones where unemployment appears to be stabilized despite a lack of the wage correction.

Suggested Citation

  • Fève, Patrick & Hénin, Pierre-Yves & Jolivaldt, Philippe, 1999. "Testing for hysteresis : unemployment persistence and wage adjustment," CEPREMAP Working Papers (Couverture Orange) 9911, CEPREMAP.
    • Handle: RePEc:cpm:cepmap:9911
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    Cited by:

    1. Khraief, Naceur & Shahbaz, Muhammad & Heshmati, Almas & Azam, Muhammad, 2020. "Are unemployment rates in OECD countries stationary? Evidence from univariate and panel unit root tests," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    2. Luis Eduardo Arango T. & Carlos Esteban Posada P., 2001. "El desempleo en Colombia," Coyuntura Social 12955, Fedesarrollo.
    3. Giray Gozgor, 2013. "Testing Unemployment Persistence in Central and Eastern European Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 694-700.
    4. Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Unemployment hysteresis in OECD countries: Centurial time series evidence with structural breaks," Economic Modelling, Elsevier, vol. 25(2), pages 312-325, March.
    5. Irina SyssoyevaMasson & João Sousa Andrade, 2017. "Are PIIGS so Different? An Empirical Analysis of Demand and Supply Shocks," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(2), pages 189-222, March.
    6. Rusinova, Desislava & Lipatov, Vilen & Heinz, Frigyes Ferdinand, 2015. "How flexible are real wages in EU countries? A panel investigation," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 140-154.

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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