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The Unemployment Paradigms Revisited: A Comparative Analysis Of U.S. State And European Unemployment

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  • DIEGO ROMERO-ÁVILA
  • CARLOS USABIAGA

Abstract

"This article tests the main unemployment paradigms for the unemployment rates of the states of the United States and the European Union-15 countries over the past three decades. For that purpose, we employ a state-of-the-art panel stationarity test, which allows for an unknown number of endogenous structural breaks as well as for cross-sectional correlation. Overall, our analysis renders clear-cut evidence in favor of regime-wise stationarity in U.S. state unemployment, while hysteresis in European unemployment. Interestingly, the timing of the breaks broadly coincides with major macroeconomic shocks mainly associated with the oil crises of the 1970s and marked changes in interest rates in the 1980s and early 1990s. Based on our results, we draw some policy prescriptions that point to the need for greater flexibility in the European labor markets. "("JEL "C23, E24) Copyright (c) 2009 Western Economic Association International.

Suggested Citation

  • Diego Romero-Ávila & Carlos Usabiaga, 2009. "The Unemployment Paradigms Revisited: A Comparative Analysis Of U.S. State And European Unemployment," Contemporary Economic Policy, Western Economic Association International, vol. 27(3), pages 321-334, July.
  • Handle: RePEc:bla:coecpo:v:27:y:2009:i:3:p:321-334
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    Cited by:

    1. Fosten, Jack & Ghoshray, Atanu, 2011. "Dynamic persistence in the unemployment rate of OECD countries," Economic Modelling, Elsevier, vol. 28(3), pages 948-954, May.
    2. Donald Freeman, 2012. "On (Not) Closing the Gaps: The Evolution of National and Regional Unemployment Rates by Race and Ethnicity," The Review of Black Political Economy, Springer;National Economic Association, vol. 39(2), pages 267-284, June.
    3. Ghoshray, Atanu & Ordóñez, Javier & Sala, Hector, 2016. "Euro, crisis and unemployment: Youth patterns, youth policies?," Economic Modelling, Elsevier, vol. 58(C), pages 442-453.
    4. García-Cintado, Alejandro & Romero-Ávila, Diego & Usabiaga, Carlos, 2015. "Can the hysteresis hypothesis in Spanish regional unemployment be beaten? New evidence from unit root tests with breaks," Economic Modelling, Elsevier, vol. 47(C), pages 244-252.
    5. Huang, Emma Li-Hsuan & Huang, Julia Hsin-Yi, 2013. "Labor Market Reforms on the Unemployment Rate and Wage Payments in Europe," MPRA Paper 63248, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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