THE DYNAMICS OF UNEMPLOYMENT AND HYSTERESIS WITHIN THE EU MEMBER COUNTRIES.

The issue of unemployment is one of the most important topics in any country since it's directly related with wellbeing of its citizens. The unemployment of European Union (EU) member countries is under influence of country--specific policy measures and EU-wide frameworks. Therefore, the desirable property of regionally integrated countries is the similarity in dynamics and properties of its unemployment, among others. The unemployment in European countries has been mainly examined under the two competing approaches. The first assumes that unemployment dynamics is under influence of cyclical factors and deviation from natural rate of unemployment arises as a consequence of macroeconomic shocks. The other approach assumes the increase in natural rate of unemployment and so the change in unemployment is not considered to by cyclical but rather long-lasting. The paper documents the phenomenon of hysteresis in unemployment of the EU member countries, namely, Czech Republic, Finland, Greece, Italy, Portugal, Slovakia and Spain. Univariate time series approach is followed on a data sample of quarterly data from 1998q1 up to 2016q4. The hypothesis of hysteresis in unemployment of the considered EU member countries is supported and Self Excited Threshold Autoregressive model (SETAR) model is well suited to explain dynamics of unemployment in each of the examined countries. The research results under framework of fractional integration suggest the unemployment series displays a long term memory but also will revert to the mean. The process is considered to be stationary with long memory. Country-specific estimates revealed nonlinear, regime specific and threshold dependent dynamics of unemployment for the considered countries. The unemployment in each of the considered countries may converge to either of two unemployment level, low unemployment level and high unemployment level. The low and high unemployment level is found to be country-specific. The results from the presented research support the existence of hysteresis and reveal the difference in dynamics of unemployment patterns among countries and between high and low unemployment regime. [ABSTRACT FROM AUTHOR]