ANALYSIS OF UNEMPLOYMENT HYSTERESIS IN TURKEY: STRUCTURAL BREAK UNIT ROOT TEST

Abstract

Purpose- There are two basic approaches in the literature on the dynamic tendencies of unemployment. The first is the concept of the natural rate of unemployment put forward by Friedman (1968) and Phelps (1968). The second is dynamics path dependent concept of unemployment hysteresis, as explained by Blanchard and Summers (1986a, 1986b). Shocks in the economy cause permanent effects on unemployment according to in unemployment hysteresis hypothesis, while unemployment occurs at a certain rate according to the natural rate of unemployment approach. The aim of this paper is to determine whether unemployment hysteresis exist in Turkey. 

Methodology- In this study, the existence of unemployment hysteresis in Turkey is tested using the monthly data for period of 2005m012016m11. Lee-Strazicich (LS) test which of taken account structural breaks unit root tests is performed. In the analysis, both single break LS (2013) and double breaks LS (2003) tests is used.

Findings- While the natural of rate unemployment is at a stationary according to unit root tests, unemployment hysteresis is nonstationary. It means that the unemployment rate has been disclosed with past values. The results show that the unemployment hysteresis hypothesis is valid for Turkey when the analysed period is considered.

Conclusion- Unemployment rates in Turkey are unresisting to shocks. Unemployment rates are permanently affected by emerging shocks. Therefore policy makers should take into account to this situation when implementing employment policies. 

Keywords

• Natural rate of unemployment,unemployment hysteresis,structural breaks,unit root tests,Turkey

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