Abstract
Purpose This study aims to examine the hysteresis hypothesis in unemployment using monthly data from 13 countries in transition. Design/methodology/approach Stationarity in the unemployment rate of selected transition economies was analyzed using four different group unit root tests, namely, linear, structural breaks, non-linear and structural breaks and non-linear. Findings The empirical results show that the unemployment hysteresis hypothesis is valid for the majority of transition economies, including Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, the Kyrgyz Republic, Latvia, Lithuania, Poland, Romania and Slovenia. However, the results strongly reject the null hypothesis of unemployment hysteresis for the Kazakhstan and the Slovak Republics. Originality/value This study revealed that, for countries in transition, advanced unit root tests exhibit greater validity when compared to standard tests
Highlights
The theory of hysteresis, developed by Blanchard and Summers (1986, 1987), indicates that cyclical variations or shock effects will persist because of the rigidity of the labor market
In this study, alternative approaches to unemployment hysteresis have been tested for selected transition economies by using different unit root tests that focus on the different properties of the time series
When unit root tests are applied to unemployment rates, we find mixed evidence for hysteresis for all countries
Summary
The theory of hysteresis, developed by Blanchard and Summers (1986, 1987), indicates that cyclical variations or shock effects will persist because of the rigidity of the labor market. Hysteresis can include the delayed effects of unemployment, whereby the unemployment rate continues to rise even after the economy has recovered. © Ebru Çaglayan Akay, Zamira Oskonbaeva and Hoseng Bülbül. The full terms of this licence maybe seen at http:// creativecommons.org/licences/by/4.0/legalcode
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