Hysteresis of unemployment rates in Africa: new findings from Fourier ADF test

Abstract

We investigate unit root in the unemployment rates of 42 African countries. The essence is to clarify if the hypothesis of hysteresis holds or unemployment rate is dubbed as having natural rate, that is, stationarity. Having considered a novel approach that considers the nonlinear Fourier and a structural break in the unit root testing framework, we find the classical unit root test wrongly accepting the hysteresis hypothesis of unemployment rate in selected African countries more than 60% of the cases. Meanwhile, our approach finds fewer cases of hysteresis in the unemployment rate than initially detected by the conventional classical test: the hysteresis hypothesis is found to hold in only 7 countries (Algeria,

Unemployment Rate in ECCAS Countries: Structural Changes and Stochastic Convergence

“…The results of this work, which generally support the absence of unemployment hysteresis, like those of Yaya, Ogbonna & Mudida (2019), imply that with the exception of Gabon and Republic of Congo, shocks to unemployment are transitory and that strong conjunctural policy action is not necessary to meet the challenges of unemployment in all ECCAS countries. The results suggests, in general, a more rapid recovery of unemployment to prior levels following the various and multiple shocks.…”

“…Additionally, in the context of South Africa, Pikoko & Andrew Phiri (2018) find that the hysteresis hypothesis is confirmed for the majority of unemployment categories, with the exception of unemployment associated with persons aged 55 -64. Yaya, Ogbonna, & Mudida (2019), in turn, consider the majority of African countries and argue that the hysteresis hypothesis is verified in only 7 out of the 42 African countries.…”

“…Njoda & Ulrich (2015), who consider the informal employment rate (over the period 1981-2012), find that the hysteresis hypothesis is not verified in two CEMAC countries, namely, Gabon and Republic of Congo. On the other hand, Yaya, Ogbonna, & Mudida (2019), consider the majority of African countries (over the period 1991-2017) and come to the conclusion that the hysteresis hypothesis is verified in only seven (7) countries out of the forty-two (42) African countries.…”

“…It should be pointed out that most authors researching this topic, among them Yaya, Ogbonna & Mudida (2019), use this unemployment indicator, which provides information to improve the understanding of the unemployment phenomenon in the selected countries. Key information on the selected unemployment indicator is provided in Table 2.…”

“…The economic slowdown that Africa has experienced in recent years as a result of external shocks is marked by high inflation coupled with high unemployment (Yaya, Ogbonna, & Mudida, 2019). Thus, according to the World Bank (2014), until 2024, only one in four young people in sub-Saharan Africa will find jobs, only a small fraction of which will be in the formal sector.…”