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Detecting unemployment hysteresis: A simultaneous unobserved components model with Markov switching

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  • Klinger, Sabine
  • Weber, Enzo

Abstract

We construct a new Markov-switching unobserved components framework for analysing hysteresis effects, featuring trend-cycle decomposition, identification of spillovers between the components and asymmetry over the business cycle. The decades-long upward trend in German unemployment is fully explained by hysteresis. The Great Recession was well absorbed because both hysteresis and structural unemployment were substantially reduced after institutional reforms. In contrast, U.S. unemployment was not driven by hysteresis effects.

Suggested Citation

  • Klinger, Sabine & Weber, Enzo, 2016. "Detecting unemployment hysteresis: A simultaneous unobserved components model with Markov switching," Economics Letters, Elsevier, vol. 144(C), pages 115-118.
    • Handle: RePEc:eee:ecolet:v:144:y:2016:i:c:p:115-118
    DOI: 10.1016/j.econlet.2016.04.027
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    Cited by:

    1. Steven D. Silver & Marko Raseta, 2021. "An ARFIMA multi-level model of dual-component expectations in repeated cross-sectional survey data," Empirical Economics, Springer, vol. 60(2), pages 683-699, February.
    2. Iman Cheratian & Saleh Goltabar & Luis A. Gil-Alaña, 2023. "The unemployment hysteresis by territory, gender, and age groups in Iran," SN Business & Economics, Springer, vol. 3(2), pages 1-18, February.
    3. Morley, James & Panovska, Irina B., 2020. "Is Business Cycle Asymmetry Intrinsic In Industrialized Economies?," Macroeconomic Dynamics, Cambridge University Press, vol. 24(6), pages 1403-1436, September.
    4. Wolter, Marc Ingo & Mönnig, Anke & Maier, Tobias & Schneemann, Christian & Steeg, Stefanie & Weber, Enzo & Zika, Gerd, 2021. "Langfristige Folgen der Covid-19-Pandemie für Wirtschaft, Branchen und Berufe," IAB-Forschungsbericht 202102, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Christian Hutter & Enzo Weber, 2020. "Corona-Krise: die transformative Rezession [Corona Crisis: Transformative Recession]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(6), pages 429-431, June.
    6. Enzo Weber & Holger Schäfer & Jörg Schmidt & Annelie Buntenbach & Alexander Spermann, 2017. "Ziel »Vollbeschäftigung«: Erreichbar oder eine Illusion?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(16), pages 03-15, August.
    7. OlaOluwa S. Yaya & Ahamuefula E. Ogbonna & Robert Mudida, 2019. "Hysteresis of unemployment rates in Africa: new findings from Fourier ADF test," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2781-2795, November.
    8. Gehrke, Britta & Weber, Enzo, 2018. "Identifying asymmetric effects of labor market reforms," European Economic Review, Elsevier, vol. 110(C), pages 18-40.
    9. Oladapo Gbenga Awolaja & OlaOluwa Simon Yaya & Ahamuefula Ephraim Ogbonna & Solomon Onuche Joseph & Xuan Vinh Vo, 2021. "Unemployment hysteresis in Middle East and North Africa countries: panel SUR-based unit root test with a Fourier function," Middle East Development Journal, Taylor & Francis Journals, vol. 13(2), pages 318-334, July.
    10. Silke Anger & Malte Sandner & Alexander M. Danzer & Axel Plünnecke & Olaf Köller & Enzo Weber & Samuel Mühlemann & Harald Pfeifer & Bernhard Wittek, 2020. "Schulschließungen, fehlende Ausbildungsplätze, keine Jobs: Generation ohne Zukunft?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(09), pages 03-24, September.
    11. Kruppe, Thomas & Mühlhan, Jannek & Weber, Enzo & Wiemers, Jürgen, 2019. "Gesamtfiskalische Wirkungen von Weiterbildungsförderung: Öffentliche Ausgaben generieren hohe Rückflüsse," IAB-Kurzbericht 201908, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    12. Britta Gehrke & Brigitte Hochmuth, 2021. "Counteracting Unemployment in Crises: Non‐Linear Effects of Short‐Time Work Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 144-183, January.
    13. Vuyokazi Pikoko & Andrew Phiri, 2019. "Is There Hysteresis in South African Unemployment? Evidence from the Post-Recessionary Period," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 15(3), pages 365-387, JUNE.
    14. Marianna Oliskevych & Iryna Lukianenko, 2020. "European unemployment nonlinear dynamics over the business cycles: Markov switching approach," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 22(4), pages 375-401.
    15. Sabine Klinger & Anvar Musayev & Jean-Marc Natal & Enzo Weber, 2019. "Immigration and Wage Dynamics in Germany," IMF Working Papers 2019/301, International Monetary Fund.
    16. Hutter, Christian & Weber, Enzo, 2021. "Labour market miracle, productivity debacle: Measuring the effects of skill-biased and skill-neutral technical change," Economic Modelling, Elsevier, vol. 102(C).
    17. Britta Gehrke & Brigitte Hochmuth, 2021. "Counteracting Unemployment in Crises: Non‐Linear Effects of Short‐Time Work Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 144-183, January.

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    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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