Testing for Hysteresis in Unemployment in OECD Countries: New Evidence using Stationarity Panel Tests with Breaks

This paper tests hysteresis effects in unemployment using panel data for 19 Organization for Economic Co-operation and Development (OECD) countries covering the period 1956-2001. The tests exploit the cross-sectional variations of the series, and additionally, allow for a different number of endogenous breakpoints in the unemployment series. The critical values are simulated based on our specific panel sizes and time periods. The findings stress the importance of accounting for exogenous shocks in the series and support the natural-rate hypothesis of unemployment for the majority of the countries analysed. Copyright 2006 Blackwell Publishing Ltd.