Abstract:

There are two different views in the literature on whether the shocks on unemployment rates are permanent. These are the hysteresis hypothesis with the natural unemployment rate hypothesis. According to the natural unemployment rate hypothesis, unemployment is a natural and stationary process. Therefore, a shock does not have a permanent impact on the unemployment rate. According to the hysteresis hypothesis, because of the rigidity in the labor market, the shocks that occur have a lasting effect on the unemployment rate. In this context, it is important to analyze how countries ' unemployment rates are following a process. The purpose of this study is to investigate the validity of unemployment hysteresis hypothesis in OECD countries. In this context, the annual unemployment rate data for 28 OECD countries covering the period 1980-2016 was used. The stationarity of the unemployment rate was investigated by Fourier Panel KPSS stationarity test proposed by Nazlioğlu and Karul 2017 . The findings suggest that the hysteresis hypothesis is valid in OECD countries. However, individual results differ from panel data analysis findings. Accordingly, while 16 of the 28 OECD countries have an unemployment hysteresis hypothesis, the natural unemployment rate hypothesis is valid in other countries

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