The nonlinear effects of global economic policy uncertainty on individual unemployment: Micro-Level evidence of heterogeneities and asymmetries

This study examines the non-linear effects of global economic policy uncertainty (EPU) on individual-level unemployment, using Barbados – a small, open economy with a fixed exchange rate – as our empirical example. To this end, we analyse the microdata used to compute Barbados's official unemployment rate between 2004 and 2022. Generally, we find that when global policy uncertainty increases, individuals face a higher likelihood of unemployment. However, our results also reveal that the effects of foreign EPU on unemployment are not uniform; instead, they exhibit significant heterogeneities and asymmetries. We find that younger individuals, men, those with post-secondary academic qualifications, and individuals employed in the construction, leisure and hospitality, and professional and business services sectors are particularly vulnerable to increases in uncertainties abroad. Our results suggest that unemployment reacts more strongly to uncertainty during economic downturns and periods of stagnation than during economic booms. Moreover, we observe that individual unemployment is slightly more affected by decreases in foreign EPU than by increases.