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Unemployment rate hysteresis and the great recession: exploring the metropolitan evidence
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Unemployment rate hysteresis and the great recession: exploring the metropolitan evidence

Author

Listed:
  • Giorgio Canarella

    (University of Nevada, Las Vegas)

  • Rangan Gupta

    (University of Pretoria)

  • Stephen M. Miller

    (University of Nevada, Las Vegas)

  • Stephen K. Pollard

    (Trident University International)

Abstract

Standard unit-root tests of the hysteresis hypothesis specify a unit root under the null against the stationary alternative of the natural-rate hypothesis, making the two theories of unemployment mutually exclusive over the sample period. In this paper, we allow switches between hysteresis and natural-rate theory using the Kejriwal, Perron, and Zhou test. The null hypothesis of the test is that the unemployment rate is I(1) throughout the sample, and the alternative hypothesis is that the unemployment rate changes persistence [i.e., switches between I(0) and I(1) regimes]. We apply the test to the unemployment rate of 20 metropolitan statistical areas (MSAs) and the USA. We use monthly observations over the period 1990:1–2016:12 and apply the test to seasonally unadjusted and seasonally adjusted data. Important differences exist between these tests. We find that with seasonally adjusted data, the Great Recession associates with a change in persistence from I(0) to I(1) in eight MSAs and the USA and to a change from I(1) to I(0) in six MSAs. Conversely, with seasonally unadjusted data, the Great Recession only associates with a change in persistence from I(0) to I(1) in four MSAs and to a change from I(1) to I(0) in three MSAs. This differential resilience to the shocks of the Great Recession provides a new aspect of the heterogeneity of the US labor markets.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:empeco:v:56:y:2019:i:1:d:10.1007_s00181-017-1361-z
    DOI: 10.1007/s00181-017-1361-z
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    Cited by:

    1. Klinger, Sabine & Weber, Enzo, 2019. "GDP-Employment decoupling and the slow-down of productivity growth in Germany," IAB-Discussion Paper 201912, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    2. 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.
    3. Juan Carlos Cuestas & Luis Gil-Alana, 2024. "Unemployment Hysteresis by Sex and Education Attainment in the EU," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 801-827, March.
    4. 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.
    5. Dilem Yıldırım & Dilan Aydın, 2021. "One Crisis After Another: A Dynamic Unemployment Persistence Analysis For The Gips Countries," ERC Working Papers 2102, ERC - Economic Research Center, Middle East Technical University, revised Apr 2021.
    6. Klinger, Sabine & Weber, Enzo, 2020. "GDP-employment decoupling in Germany," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 82-98.
    7. 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.
    8. Klinger, Sabine & Weber, Enzo, 2015. "GDP-Employment Decoupling and the Productivity Puzzle in Germany," University of Regensburg Working Papers in Business, Economics and Management Information Systems 485, University of Regensburg, Department of Economics.

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    More about this item

    Keywords

    Stationary and non-stationary data; Seasonally unadjusted and Seasonally adjusted data; Kejriwal–Perron–Zhou (KPZ) test; Unemployment rate persistence;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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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    Access and download statistics

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