Hysteresis Hypothesis in Unemployment: Evidence from Iran's Labor Market

Nowadays, the study of unemployment properties is particularly important as a result of the increase of this variable in recent years. This paper tests the hysteresis hypothesis in youth unemployment at the urban, rural, regional, and general level by using quarterly data in period 2000- 2018. In addition, this paper investigates the stochastic nature of unemployment for thirty regions of Iran. We first employ the ADF and KPSS methods to test the hysteresis hypothesis at the urban, rural and general levels. Second, we apply the IPS, Chio and Fisher methods to examine this test for thirty regions using quarterly data in the period 2005-2018. Finally, the PANIC method is applied to identify the common and idiosyncratic components of unemployment rates at the regional level. The findings of different methods give support to the existence of hysteresis for the youth unemployment at the urban, rural and general level. Also, our empirical findings provide that the evidence is favorable to the existence of hysteresis in some regions. These results implicate supply side policies are effective to reduce youth unemployment at different levels. Also, our empirical findings provide that the evidence is favorable to the existence of hysteresis in some regions. These results implicate supply side policies are effective to reduce youth unemployment at different levels.