Analyzing Unemployment Rates Convergence across US States: New Evidence Using Quantile Unit Root Test

Abstract

This paper is to study the stochastic convergence toward cross-average across 50 US states over the period from 1976–2018. To the end, we apply quantile unit root test and several conventional linear and nonlinear unit root tests. While conventional unit root tests reject the stochastic convergence hypothesis for most of the states, we have found results in favor of stochastic convergence for 41 out of 50 states using the quantile unit root tests. In addition, our results indicated that the states exhibited different stochastic behaviors in various quantiles. In the states, which have had unemployment rate less than cross-average in the boom period, negative shocks to unemployment rate have had long-lasting effects and shocks are divergent from the cross-average unemployment rate. But in a recessionary period of economics, positive shocks to the unemployment rate result in convergence toward cross-average, but have transitory effects and disappear in short-run.