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Is hysteresis important for U.S. unemployment?

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  • John M. Roberts
  • Norman J. Morin

Abstract

We look for evidence of "hysteresis" in the U.S. unemployment rate - that is, that current labor market outcomes affect the future equilibrium level of the unemployment rate. We first examine (using a variety of econometric tests for unit roots) whether the unemployment rate tends to come back to a long-run average over time. On balance, our results suggest that the unemployment rate tends to return to a long-run value, ruling out the possibility of permanent hysteresis. We look for evidence of temporary hysteresis by examining whether lagged unemployment enters a standard Phillips-curve model of U.S. inflation. We find week evidence in support of temporary hysteresis, but the effect is not large, suggesting that hysteresis is not very important for U.S. unemployment.

Suggested Citation

  • John M. Roberts & Norman J. Morin, 1999. "Is hysteresis important for U.S. unemployment?," Finance and Economics Discussion Series 1999-56, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:1999-56
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    References listed on IDEAS

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    Cited by:

    1. Clemente, Jesus & Lanaspa, Luis & Montanes, Antonio, 2005. "The unemployment structure of the US states," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 848-868, September.
    2. Ifedolapo Olabisi Olanipekun & Seyi Saint Akadiri & Osundina Olawumi & Festus Victor Bekun, 2017. "Does Labor Market Hysteresis Hold in Low Income Countries?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 19-23.
    3. Charles A. Fleischman & Joshua H. Gallin, 2001. "Employment persistence," Finance and Economics Discussion Series 2001-25, Board of Governors of the Federal Reserve System (U.S.).
    4. Eric Heyer & Hervé Le Bihan & Frédéric Lerais, 2000. "Relation de Phillips, boucle prix-salaire : une estimation par la méthode de Johansen," Économie et Prévision, Programme National Persée, vol. 146(5), pages 43-60.
    5. Camarero, Mariam & Tamarit, Cecilio, 2004. "Hysteresis vs. natural rate of unemployment: new evidence for OECD countries," Economics Letters, Elsevier, vol. 84(3), pages 413-417, September.
    6. Lawrence Huiyan Zhang, 2001. "Sacrifice Ratios with Long-Lived Effects," Economics Working Paper Archive 446, The Johns Hopkins University,Department of Economics.
    7. Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2004. "Testing for hysteresis in unemployment in OECD countries. New evidence using stationarity panel tests with breaks†," Economic Working Papers at Centro de Estudios Andaluces 2004/40, Centro de Estudios Andaluces.

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    Keywords

    Unemployment ; Labor market;

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