Unemployment and participation rates? Revisiting the US data

Abstract

This article applies the method of Gonzalo and Pitarakis (2006) to investigate the relationship of unemployment and labour force participation in the United States. Empirical analysis indicates the long-run relationships between these two variables are regime dependent.

Keywords:

• added worker effect
• cointegration
• discouraged worker effect
• threshold effect

JEL Classification:

• E24
• J60

Notes

¹ Cointegrating regressions remain linear in variables in the presence of threshold effects, but become nonlinear in parameters when threshold effects occur in the cointegrating relation.

² We set the delay parameter d=3 by reference to the maximum supLM statistic.