Validity of Unemployment Hysteresis: The Most Fragile Five Developing Countries

This study investigates the movement of unemployment for five most fragile developing countries including Turkey over the period 1980-2016. For this purpose, which one of the three approaches within the theoretical literature natural unemployment rate hypothesis, unemployment hysteresis or structuralist theory of unemployment is valid is examined using traditional unit root and unit root tests allowing for structural breaks. Hypothesis of unemployment hysteresis is valid for five most fragile developing countries according to both results of traditional unit root and unit root test allowing for structural breaks. Namely, unemployment rate does not fluctuate around natural unemployment rate and therefore the results indicate that shocks do not create temporary effects on unemployment but permanent. Governments in five most fragile developing countries are expected to actively intervene in the policy on unemployment since the unemployment rate does not tend to return to its natural level.