Unemployment by Gender: Evidence from EU Countries

By Bakas, Dimitrios; Papapetrou, Evangelia | International Advances in Economic Research, February 2014 | Go to article overview

Unemployment by Gender: Evidence from EU Countries


Bakas, Dimitrios, Papapetrou, Evangelia, International Advances in Economic Research


Introduction

The high and highly persistent unemployment rates across European countries and the U.S. over the recent years have attracted a significant amount of both theoretical and empirical work. Economists suggest that major macroeconomic disturbances such as a productivity slowdown, the steep rise in oil prices in the 1970s, and changes in world interest rates could account for the rise and persistence of unemployment (Roed 1997).

From a theoretical point of view, there are two main hypotheses on unemployment behavior: hysteresis and the natural rate of unemployment. Hysteresis in unemployment implies that cyclical fluctuations have permanent effects on the level of unemployment due to labor market restrictions (Blanchard and Summers 1986). By contrast, the natural rate of unemployment hypothesis characterizes unemployment as a mean reverting process. Therefore, shocks to the series only have temporary effects. These theories can be investigated by examining the order of integration of the unemployment rate. Level stationarity of unemployment (rejection of the unit root hypothesis) would support the natural rate of unemployment hypothesis, whereas the presence of a unit root would imply that shocks affecting the series have permanent effects supporting the hysteresis hypothesis. In a seminal work, Blanchard and Summers (1986) used conventional unit root tests to examine the impact of hysteresis on unemployment and provide evidence of non-stationarity of unemployment in the EU, concluding that unemployment exhibits hysteresis. They also find evidence of stationarity for the US.

Although the issue of unemployment persistence in the EU has been studied extensively, the structure of unemployment by gender has received relatively little attention. Recently, there is renewed interest on the issue of gender unemployment. Hoynes et al. (2012) examined the labor market effects of the recent recession in the U.S. and identified dramatic differences across various demographic groups, especially between men and women. Peiro et al. (2012) analyzed the relationship between male and female unemployment and the business cycle in the UK and the U.S., providing evidence of a strong association between gender unemployment and cyclical factors. Ewing et al. (2005) stressed the importance of analyzing the time series behavior of disaggregated unemployment rates and show, using nonlinear time-series techniques, the differential effects of unanticipated shocks on unemployment rates of various demographic groups. Queneau and Sen (2008) have presented empirical evidence regarding unemployment dynamics for women and men in eight OECD countries by using unit-root testing. They provide evidence of gender differences in unemployment dynamics in Canada. Germany, and the U.S. and find that the degree of persistence of gender-based unemployment rates is rather low. Queneau and Sen (2012), using univariate unit-root tests. found that U.S. unemployment rates disaggregated by gender are characterized by the hysteresis hypothesis. Belloc and Tilli (2012), by examining the dynamics of unemployment rates by gender in Italian regions using unit root tests with structural breaks, showed that the gender unemployment gap has narrowed.

However, most of these studies used univariate methods to explore the dynamics of unemployment rates for men and women. Nevertheless, it is has been recognized that the reliance on conventional univariate unit root tests, which exhibit very low power when the time period under consideration is short, makes the validity of these tests questionable. To address this problem, two different approaches are followed in the literature on testing the hysteresis hypothesis: first, the use of unit-root testing techniques that allow for the presence of structural breaks, such as the tests of Zivot and Andrews (1992) and Lee and Strazicich (2003) and, second, the application of panel unit root tests that allow for cross-sectional correlation in the error terms and help to avoid severe size distortions (O'Connell 1999; Leon-Ledesma 2002; Christopoulos and Leon-Ledesma 2007; Liu et al. …

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