Unemployment invariance hypothesis and labor supply: a test for 31 American countries

Maridueña-Larrea, Ángel and Martín-Román, Ángel L. (2025): Unemployment invariance hypothesis and labor supply: a test for 31 American countries.

Abstract

This study examines the empirical validity of the Unemployment Invariance Hypothesis (UIH) using a sample of 31 American countries and annual data from 1991 to 2023. While previous literature often focused on single-country analyses, an existing study for Latin America covers only six countries and relies on short time spans, limiting their ability to capture full economic cycles. This paper expands both the temporal and geographical scope, enabling more accurate cross-country comparisons. The results generally reject the UIH, with significant implications for economic policy in both cases—whether the hypothesis is accepted or not. In countries where UIH is rejected, the discouraged worker effect (DWE) tends to outweigh the added worker effect (AWE). These findings highlight the need for country-specific labor policies, which can be better designed based on the estimates presented.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cointegration; Added worker effect; Discouraged worker effect; Unemployment invariance; Unemployment rate; Labor 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 > 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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