Can the insider-outsider theory explain unemployment hysteresis in OCED countries?

Bakas, D. ORCID: 0000-0003-4771-4505 and Makhlouf, Y. ORCID: 0000-0001-7737-3153, 2017. Can the insider-outsider theory explain unemployment hysteresis in OCED countries? Nottingham: Nottingham Trent University.

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Abstract

The insider-outsider theory has been commonly used to explain the hysteretic behaviour of unemployment. However, there is no empirical evidence about the validity of insiders’ power on explaining the persistence of unemployment. This paper, using panel unit root tests that allow for the presence of covariates, addresses this gap and examines whether the insider-outsider theory, by means of various labour market proxies, can explain the hysteresis hypothesis for the OECD countries over 1960-2013. Our results show that although unemployment rate exhibits a pronounced hysteretic behaviour in OECD countries, this behaviour is reversed once we consider the insider-outsider proxies as covariates. This validates the role of insiders’ power as a key source of unemployment hysteresis.

Item Type: Working paper
Publication Title: Discussion Papers in Economics
Creators: Bakas, D. and Makhlouf, Y.
Publisher: Nottingham Trent University
Place of Publication: Nottingham
Date: July 2017
Number: 2017/7
ISSN: 1478-9396
Divisions: Schools > Nottingham Business School
Depositing User: Jonathan Gallacher
Date Added: 19 Mar 2018 14:31
Last Modified: 11 May 2018 14:49
URI: http://irep.ntu.ac.uk/id/eprint/33026

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