UNEMPLOYMENT, HYSTERESIS AND TRANSITION

In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear ‘Hysteresis’ as described by the presence of unit roots in unemployment as in most empirical res...

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Bibliographic Details
Published in:Scottish journal of political economy 2004-08, Vol.51 (3), p.377-401
Main Authors: León-Ledesma, Miguel A., McAdam, Peter
Format: Article
Language:English
Subjects:
Business Cycles
C22
C23
Comparative analysis
E24
Eastern Europe
Economic Theories
Economic theory
Europe
European Union
Hysteresis
Labour economics
Markov Switching
Political economy
Postcommunist Societies
Structural change
Studies
Transition
Transition economies
Unemployment
Unit Root
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Summary:In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear ‘Hysteresis’ as described by the presence of unit roots in unemployment as in most empirical research on this area. Given that this is potentially a narrow definition, we also take into account the existence of structural breaks and nonlinear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria, that is, if it remains locked into a new level whenever some structural change or sufficiently large shock occurs. Our findings show that, in general, we can reject the unit‐root hypothesis after controlling for structural changes and business‐cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria.
ISSN:0036-9292
1467-9485
DOI:10.1111/j.0036-9292.2004.00311.x