Cyclical Dynamics of Unemployment: Portugal versus the Euro Area

Since Portugal joined the European Monetary Union, its unemployment rate has increased continuously. In the euro area, some other countries have also been experiencing high levels of unemployment. In this work, we analyse and characterize the dynamics of Portuguese unemployment in the recent past in an attempt to understand which groups have been most affected and how austerity measures have impacted this problem. Also, we investigate the relationship between the cyclical behaviour of the unemployment rate and business cycles since the 1970s, emphasizing a comparison between Portugal and the first eleven countries, other than Portugal, that have adopted the euro. The results show countercyclical behaviour in most countries, with great differences in the degree of association between the cycles of the two variables, and also suggest that the introduction of the euro induced stronger correlation for the majority of the euro area countries. Finally, we present some policy considerations raised by our results.