The Unemployment Invariant Hypothesis: Heterogeneous Panel Cointegration Evidence from U.S. State Level Data

Year 2017, Volume: 7 Issue: 1, 414 - 419, 01.03.2017

Mercy Laita Palamuleni

Abstract

We explore the long-run relationship between the unemployment rate and the labor force participation rates for U.S. over the period of 1976-2015. We
use U.S. state level data and panel cointegration techniques that are robust to cross-sectional heterogeneity, cross-sectional dependency, omitted variable
bias and endogeniety issues. We find evidence that on average these two variables are cointegrated and are inversely related. Similar to studies that
employ U.S. country level data, this study further questions the empirical relevance of the unemployment invariant hypothesis for the case of the U.S.

Keywords

Unemployment rate, Unemployment invariant hypothesis, panel cointegration