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

Year 2017, Volume: 4 Issue: 4, 368 - 376, 30.12.2017

Aylin Idıkut Ozpence , Eren Ergen

https://doi.org/10.17261/Pressacademia.2017.747

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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