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Hysteresis and Persistence in the Course of Unemployment: The EU and US Experience

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  • Christian Dreger
  • Hans-Eggert Reimers

Abstract

We investigate hysteresis and persistence behaviour in the course of unemployment in EU countries and US states by means of first and second generation panel unit root tests. While the former tests assume independent cross sections, the latter control for dependencies. The first generation tests indicate, that unemployment is persistent, but nevertheless stationary. Second generation tests reveal mixed results, but the evidence for stationarity is much stronger for the US. Hysteresis in EU unemployment is attributed to the idiosyncratic, but not to the common component. In contrast, idiosyncratic components are stationary in the US. If hysteresis behaviour is also relevant here, it is more likely to arise in the common component. These findings might reflect a lower degree of migration of the unemployed in the EU from starving into prosperous regions, possibly because of language barriers or national labour market regulations

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44180.de/dp572.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 572.

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Length: 18 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp572

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Keywords: Unemployment persistence; hysteresis; panel unit roots;

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  1. Barro, Robert J, 1988. "The Persistence of Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 32-37, May.
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  13. McAdam, Peter & León-Ledesma, Miguel A., 2003. "Unemployment, hysteresis and transition," Working Paper Series 0234, European Central Bank.
  14. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  15. Lyhagen, Johan, 2000. "Why not use standard panel unit root test for testing PPP," Working Paper Series in Economics and Finance 413, Stockholm School of Economics.
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  17. Jang, Myoung Jin & Shin, Dong Wan, 2005. "Comparison of panel unit root tests under cross sectional dependence," Economics Letters, Elsevier, vol. 89(1), pages 12-17, October.
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