Template-Type: ReDIF-Paper 1.0
Author-Name: Dimitrios Bakas
Author-Name: Yousef Makhlouf
Title: Can the Insider-Outsider Theory Explain Unemployment Hysteresis in OECD Countries?
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. 
File-URL: http://www.ntu.ac.uk/__data/assets/pdf_file/0035/397466/1d-BakasMakhlouf_WP_2017_7.pdf
File-Format: Application/pdf
File-Function: First version, 2017
Creation-Date: 2017-07
Classification-JEL: C23, E24, J51, J64
Keywords: Insider-outsider theory, Hysteresis, Unemployment, Panel unit root tests
Handle: RePEc:nbs:wpaper:2017/07