The unemployment invariance hypothesis and the implications of added and discouraged worker effects in Latin America

Maridueña-Larrea, Ángel and Martín-Román, Ángel L. (2023): The unemployment invariance hypothesis and the implications of added and discouraged worker effects in Latin America.

Abstract

This research explores the long-term equilibrium relationship between unemployment and labour force participation rates for six selected countries in Latin America at both aggregate and gender-disaggregated levels. Cointegration analysis focused on the study of time series is used to validate the unemployment invariance hypothesis and explore added and discouraged worker effects in depth. The results suggest mixed dynamics for the aggregate model; however, a clear gender bias is revealed towards the added worker effect for women, while the discouraged worker effect is confirmed for men. The validity of the unemployment invariance hypothesis in several countries appears to reflect some rigidities that prevent the improvement of nations’ labour markets, exposing issues that economic policies must strategically address.

• Item Type: MPRA Paper
• Language: English
• Keywords: cointegration; added worker effect; discouraged worker effect; unemployment invariance; unemployment rate; labour force participation rate
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J68 - Public Policy

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