Is labour force participation independent of unemployment? A panel analysis for high-income countries

Abstract

PurposeWe test the pertinence of the unemployment invariance hypothesis (UIH) for a set of Organisation for Economic Co-operation and Development countries.Design/methodology/approachWe empirically investigate the nexus between unemployment and labour force participation employing structural vector autoregressive methods for panel data.FindingsWe find that shocks in unemployment produce long-lasting, negative effects on participation, testifying to a discouraged worker effect.Originality/valueOur results do not support the validity of the UIH in high-income economies. This has relevant implications for policy making and macroeconomic models.