Unemployment persistence in EU countries: new evidence using bounded unit root tests

ABSTRACT

We apply a series of bounded unit root tests to revisit the unemployment persistence in eight European Union (EU) countries. We find strong evidence in favour of the hysteresis hypothesis in all the cases. This result can be explained by a reduced labour mobility, a decreasing wage inflation and a high uncertainty regarding the future level of unemployment in the EU countries.

KEYWORDS:

• Unemployment
• hysteresis
• unit root tests
• bounded series
• EU countries

JEL CLASSIFICATION:

• C22
• E23
• J64

Acknowledgement

This work was supported by a grant of the Romanian National Authority for Scientific Research and Innovation, CNCS – UEFISCDI, project number PN-II-RU-TE-2014-4-1760.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Following Furuoka (2016b), we show that the results of newly proposed ADF and Fourier ADF tests, with and without structural breaks, are contradictory. These results can be provided by the authors upon request.

² The selected countries are the only EU countries for which OECD statistics are available starting with 1965.