Unemployment dynamics in Uruguay: An analysis using chain reaction theory

Abstract

This article analyses unemployment dynamics in Uruguay within the framework of chain reaction theory and offers evidence to account for the remarkable drop in unemployment over recent years. It confirms the impact of exogenous variables on the long-run trajectory of unemployment and rules out the notion that its long-run level gravitates around an equilibrium value. It identifies inertia processes in labour supply and demand and in wages, whose mutual interactions mean that shocks have persistent effects on unemployment. There are also complementary spillover effects that influence the magnitude and duration of the effects of shocks. Lastly, the article emphasizes that growth in the capital stock and capital productivity accounts for some of the substantial decline in unemployment in Uruguay since 2003.

Unemployment persistence in Europe: evidence from the 27 EU countries

“…Caporale and Gil-Alana (2018) provided evidence of asymmetric behaviour in Spanish unemployment; specifically, the degree of persistence is higher during recessions than during expansions; in both cases the estimates of d are higher than 1, which represents evidence of hysteresis. More papers using fractional integration and long-memory models to analyse unemployment rates include those by Tscherning and Zimmermann (1992), Koustas and Veloce (1996), Van Dijk and Franses (2002), Komornik and Komornikova (2005), Lahiani and Scaillet (2009), Kurita (2010), Shalari et al (2015), Leites and Porras (2016), Tule et al (2017), etc.…”