Hysteresis in unemployment: Evidence from 48 U.S. States

Frank M. Song, Yangru Wu

Research output: Contribution to journalArticlepeer-review

68 Scopus citations

Abstract

Studies using standard unit-root tests generally cannot reject the hypothesis of a unit root in unemployment rates. These findings have been interpreted as supporting the hysteresis hypothesis. We demonstrate that the failure to reject the null may be due to the low power of the tests. We analyze unemployment rates of 48 U.S. contiguous states using a more powerful panel-based test which exploits cross-section restrictions on the constituent series. The critical values are simulated tailored to our sample size. We reject the null decisively, casting some doubt on the hysteresis hypothesis for the United States. (JEL E2, E0).

Original languageEnglish (US)
Pages (from-to)235-243
Number of pages9
JournalEconomic Inquiry
Volume35
Issue number2
DOIs
StatePublished - Apr 1997

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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