Unemployment dynamics and NAIRU estimates for accession countries: A univariate approach

In this paper we test for hysteresis effects versus the natural rate hypothesis on unemployment rates of new members in the European Union (EU) using unit root tests that account for the presence of level shifts. In addition, we estimate the non-accelerating inflation rate of unemployment (NAIRU) from a univariate perspective. The precision of these NAIRU are investigated by studying two sources of inaccuracy that derive from the estimation of the break points, and the estimation of the autoregressive parameters. The results indicate up to four structural breaks in the NAIRU of transition countries that can be associated with institutional changes from implementing market-oriented reforms. Moreover, the degree of persistence in unemployment varies dramatically among the individual countries depending on the stage reached in the transition process and the institutional setting in the labor market. Journal of Comparative Economics 33 (3) (2005) 584-603. Jaume I University, E-12071 Castellon, Spain; University of Barcelona, E-08034 Barcelona, Spain; Department of Applied Economics II, University of Valencia, Campus Tarongers, PO Box 22006, E-46071 Valencia, Spain. (c) 2005 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.