Hysteresis in East Asian unemployment

Abstract

High-performing Asian economies are quite distinctive with efficient, flexible and responsive labour markets. Comparing the persistence of unemployment in East Asian economies to that in Western countries is difficult due to the data's short time spans and possible structural breaks. This article employs advanced unit root tests to deal with these problems and fails to reject ‘hysteresis’ in the unemployment rates of the high-performing Asian countries, even after taking into account structural change. An alternative explanation of different productivity growth for the hysteresis phenomenon of the Asian countries is proposed herein.