IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpur/0411007.html
   My bibliography  Save this paper

Convergence in West German Regional Unemployment Rates

Author

Listed:
  • Christian Bayer

    (European University Institute, Department of Economics, Florence)

  • Falko Juessen

    (Faculty of Economic & Social Science, University of Dortmund)

Abstract

Differences in regional unemployment rates are often used to describe regional economic inequality. This paper asks whether changes in regional unemployment differences in West Germany are persistent over time. Only if such changes are persistent, the differences are a sensible measure of inequality and only then can policies be effective that aim at lowering the dispersion of unemployment rates. Our analysis follows a time-series approach to economic convergence and we test whether unemployment differences between regions are stationary or not. While univariate tests show that changes in unemployment differences are persistent, more powerful panel tests find them to be only transitory. However, these tests reveal only a moderate speed of convergence. Since there is a structural break following the second oil crisis, we also employ unit-root tests that allow for such break. Again we find strong evidence for convergence and now also the speed of convergence is found to be very high.

Suggested Citation

  • Christian Bayer & Falko Juessen, 2004. "Convergence in West German Regional Unemployment Rates," Urban/Regional 0411007, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpur:0411007
    Note: Type of Document - pdf; pages: 20
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/urb/papers/0411/0411007.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Matthias Göcke, 2002. "Various Concepts of Hysteresis Applied in Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 16(2), pages 167-188, April.
    2. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
    3. Perron, Pierre & Vogelsang, Timothy J., "undated". "Level Shifts and Purchasing Power Parity," Instructional Stata datasets for econometrics levshift, Boston College Department of Economics.
    4. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 206-259.
    5. Carlino, Gerald & Mills, Leonard, 1996. "Are U.S. regional incomes converging? Reply," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 599-601, December.
    6. Andrew Glyn & Robert Rowthorn & Faculty of Economics and Politics & Cambridge University, 2002. "Convergence and Stability in US Regional Employment," Economics Series Working Papers 92, University of Oxford, Department of Economics.
    7. Ron Martin, 1997. "Regional Unemployment Disparities and their Dynamics," Regional Studies, Taylor & Francis Journals, vol. 31(3), pages 237-252.
    8. Sarno, Lucio & Taylor, Mark P., 1998. "Real exchange rates under the recent float: unequivocal evidence of mean reversion," Economics Letters, Elsevier, vol. 60(2), pages 131-137, August.
    9. Olivier Jean Blanchard & Stanley Fischer, 1989. "Editorial in "NBER Macroeconomics Annual 1989, Volume 4"," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 1-8, National Bureau of Economic Research, Inc.
    10. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    11. Bernard, Andrew B. & Durlauf, Steven N., 1996. "Interpreting tests of the convergence hypothesis," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 161-173.
    12. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    13. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    14. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    15. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
    16. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    17. Knut Røed, 1997. "Hysteresis in Unemployment," Journal of Economic Surveys, Wiley Blackwell, vol. 11(4), pages 389-418, December.
    18. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    19. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    20. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    21. Stephen T. Marston, 1985. "Two Views of the Geographic Distribution of Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 57-79.
    22. Rowthorn Robert & Glyn Andrew J, 2006. "Convergence and Stability in U.S. Employment Rates," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-43, April.
    23. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    24. Maddala, G S & Wu, Shaowen, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    25. Maurice Obstfeld and Giovanni Peri., 1998. "Regional Nonadjustment and Fiscal Policy: Lessons for EMU," Center for International and Development Economics Research (CIDER) Working Papers C98-096, University of California at Berkeley.
    26. Cross, Rod, 1994. "The Macroeconomic Consequences of Discontinuous Adjustment: Selective Memory of Non-dominated Extrema," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 212-221, May.
    27. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    28. Michael Reutter, 2000. "Hysteresis in West German Unemployment Reconsidered," CESifo Working Paper Series 240, CESifo.
    29. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
    30. Bruno Amable & Jérôme Henry & Frédéric Lordon & Richard Topol, 2004. "Complex Remanence vs. Simple Persistence : Are Hysteresis and Unit-Root Processes Observationally Equivalent ?," Post-Print hal-00279420, HAL.
    31. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    32. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    33. Olivier J. Blanchard & Stanley Fischer, 1989. "NBER Macroeconomics Annual 1989, Volume 4," NBER Books, National Bureau of Economic Research, Inc, number blan89-1, June.
    34. David H. Papell & Christian J. Murray & Hala Ghiblawi, 2000. "The Structure of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 309-315, May.
    35. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    36. Evans, Paul & Karras, Georgios, 1996. "Convergence revisited," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 249-265, April.
    37. Amable, Bruno & Henry, Jerome & Lordon, Frederic & Topol, Richard, 1994. "Strong hysteresis versus zero-root dynamics," Economics Letters, Elsevier, vol. 44(1-2), pages 43-47.
    38. Ansgar Belke & Matthias Göcke, 2005. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 185-203, May.
    39. Oxley, Les & Greasley, David, 1997. "Convergence in GDP per capita and real wages: Some results for Australia and the UK," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 43(3), pages 429-436.
    40. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-162, April.
    41. 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.
    42. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
    43. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    44. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roberto Patuelli & Norbert Schanne & Daniel A. Griffith & Peter Nijkamp, 2012. "Persistence Of Regional Unemployment: Application Of A Spatial Filtering Approach To Local Labor Markets In Germany," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 300-323, May.
    2. Mark D. Partridge & Dan S. Rickman & M. Rose Olfert & Ying Tan, 2015. "When Spatial Equilibrium Fails: Is Place-Based Policy Second Best?," Regional Studies, Taylor & Francis Journals, vol. 49(8), pages 1303-1325, August.
    3. Bernd Aumann & Rolf Scheufele, 2010. "Is East Germany catching up? A time series perspective," Post-Communist Economies, Taylor & Francis Journals, vol. 22(2), pages 177-192.
    4. Alka Obadić & Vladimir Arčabić & Lucija Rogić Dumančić, 2021. "Labor market institutions convergence in the European Union," EFZG Working Papers Series 2102, Faculty of Economics and Business, University of Zagreb.
    5. Natalia PRESSMAN & Vadim KLEPFISH, 2008. "Regional Unemployment Rate Convergence in Israel," EcoMod2008 23800110, EcoMod.
    6. Fábio Augusto Reis Gomes & Cleomar Gomes da Silva, 2006. "Hysteresis Vs. Nairu And Convergence Vs. Divergence: The Behavior Of Regional Unemployment Rates In Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 161, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    7. Hans-Friedrich Eckey & Reinhold Kosfeld & Matthias Türck, 2007. "Regional Convergence in Germany: a Geographically Weighted Regression Approach," Spatial Economic Analysis, Taylor & Francis Journals, vol. 2(1), pages 45-64.
    8. Roberto Patuelli & Daniel A. Griffith & Michael Tiefelsdorf & Peter Nijkamp, 2011. "Spatial Filtering and Eigenvector Stability: Space-Time Models for German Unemployment Data," International Regional Science Review, , vol. 34(2), pages 253-280, April.
    9. Joanna Tyrowicz & Piotr Wojcik, 2011. "Nonlinear Stochastic Convergence Analysis of Regional Unemployment Rates in Poland," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 3(1), pages 59-79, July.
    10. Joanna Tyrowicz & Piotr Wójcik, 2007. "Konwergencja bezrobocia w Polsce w latach 1999-2006," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 10, pages 1-20.
    11. Joanna Tyrowicz & Piotr Wójcik, 2010. "Unemployment Convergence in Transition," Studies in Economic Transition, in: Enrico Marelli & Marcello Signorelli (ed.), Economic Growth and Structural Features of Transition, chapter 11, pages 236-259, Palgrave Macmillan.
    12. Roberta Colavecchio & Declan Curran & Michael Funke, 2009. "Drifting together or falling apart? The empirics of regional economic growth in post-unification Germany," Applied Economics, Taylor & Francis Journals, vol. 43(9), pages 1087-1098.
    13. Werner, Daniel, 2013. "New insights into the development of regional unemployment disparities," IAB-Discussion Paper 201311, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    14. László Kónya, 2020. "Did the unemployment rates converge in the EU?," Empirical Economics, Springer, vol. 59(2), pages 627-657, August.
    15. Tatiana Blinova & Vladimir Markov & Victor Rusanovskiy, 2015. "Interregional Differentiation of the Youth Unemployment Rate in Russia," ERSA conference papers ersa15p601, European Regional Science Association.
    16. Joanna Tyrowicz & Piotr Wojcik, 2010. "Active Labour Market Policies and Unemployment Convergence in Transition," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 2(1), pages 46-72, January.
    17. Darja Borsic & Alenka Kavkler, 2009. "Duration of Regional Unemployment Spells in Slovenia," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(2), pages 123-146.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christian Bayer & Falko Jüßen, 2007. "Convergence in West German Regional Unemployment Rates," German Economic Review, Verein für Socialpolitik, vol. 8(4), pages 510-535, November.
    2. Giorgio Canarella & Rangan Gupta & Stephen M. Miller & Stephen K. Pollard, 2019. "Unemployment rate hysteresis and the great recession: exploring the metropolitan evidence," Empirical Economics, Springer, vol. 56(1), pages 61-79, January.
    3. Werner, Daniel, 2013. "New insights into the development of regional unemployment disparities," IAB-Discussion Paper 201311, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Matteo Lanzafame, 2010. "The nature of regional unemployment in Italy," Empirical Economics, Springer, vol. 39(3), pages 877-895, December.
    5. Giray Gozgor, 2013. "Testing Unemployment Persistence in Central and Eastern European Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 694-700.
    6. Qaiser Munir & Sook Ching Kok & Kasim Mansur, 2019. "External Shocks, Structural Breaks And Unemployment Hysteresis In Selected Asian Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(03), pages 575-600, June.
    7. Eftychia Tsanana & Constantinos Katrakilidis, 2014. "Do Balkan economies catch up with EU? New evidence from panel unit root analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 641-662, November.
    8. Werner, Daniel, 2013. "Regional convergence analysis for skill-specific employment groups," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79706, Verein für Socialpolitik / German Economic Association.
    9. Omay, Tolga & Shahbaz, Muhammad & Stewart, Chris, 2021. "Is There Really Hysteresis in OECD Countries’ Unemployment Rates? New Evidence Using a Fourier Panel Unit Root Test," MPRA Paper 107691, University Library of Munich, Germany, revised 10 May 2021.
    10. Roberto Bande & Marika Karanassou, 2014. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," Regional Studies, Taylor & Francis Journals, vol. 48(11), pages 1863-1883, November.
    11. Tolga Omay & Muhammad Shahbaz & Chris Stewart, 2021. "Is there really hysteresis in the OECD unemployment rates? New evidence using a Fourier panel unit root test," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(4), pages 875-901, November.
    12. Kåre Johansen, "undated". "Hysteresis in Unemployment: Evidence from Norwegian Counties," Working Paper Series 0602, Department of Economics, Norwegian University of Science and Technology, revised 20 Aug 2002.
    13. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 970-1042, December.
    14. Roberto Bande & Marika Karanassou, 2009. "Labour market flexibility and regional unemployment rate dynamics: Spain 1980–1995," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 181-207, March.
    15. Sebastian Dullien & Ulrich Fritsche, 2007. "Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-run Divergence? Results from a Comparison with the United States of America and Germany," Macroeconomics and Finance Series 200702, University of Hamburg, Department of Socioeconomics.
    16. Juan Carlos Cuestas & Karsten Staehr, 2013. "Fiscal shocks and budget balance persistence in the EU countries from Central and Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3211-3219, August.
    17. Diego Romero-Ávila & Carlos Usabiaga, 2008. "On the persistence of Spanish unemployment rates," Empirical Economics, Springer, vol. 35(1), pages 77-99, August.
    18. 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.
    19. 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.
    20. Firouz Fallahi & Gabriel Rodríguez, 2011. "Persistence of Unemployment in the Canadian Provinces," International Regional Science Review, , vol. 34(4), pages 438-458, October.

    More about this item

    Keywords

    stochastic convergence; unemployment; structural break; unit root;
    All these keywords.

    JEL classification:

    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpur:0411007. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.