Are Labour Force Participation Rates Non-Stationary? Evidence from 130 Years for G7 Countries

24 Pages Posted: 18 Jun 2008

See all articles by Jakob B. Madsen

Jakob B. Madsen

University of Copenhagen - Department of Economics

Vinod Mishra

Monash Business School

Russell Smyth

Monash University - Department of Economics

Abstract

This paper applies a unit root test with a non-linear threshold to examine whether labour force participation rates are mean reverting for G7 countries using annual data over a 130 year period. We find some evidence of mean reversion for just over half the sample; however, this result is sensitive to regime shifts. We also examine whether the labour force participation rate is trend reverting through employing a lagrange multiplier (LM) unit root test with one and two structural breaks in the intercept and slope. The LM unit root test provides no additional evidence in support of stationarity. On the basis of the unit root tests for mean reversion we conclude that there is at best mixed evidence that long-term changes in unemployment rates translate into long-term changes in employment rates and that the unemployment rate is a useful indicator of joblessness.

Suggested Citation

Madsen, Jakob Bruechner and Mishra, Vinod and Smyth, Russell, Are Labour Force Participation Rates Non-Stationary? Evidence from 130 Years for G7 Countries. Australian Economic Papers, Vol. 47, Issue 2, pp. 166-189, June 2008, Available at SSRN: https://ssrn.com/abstract=1147234 or http://dx.doi.org/10.1111/j.1467-8454.2008.00339.x

Jakob Bruechner Madsen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Vinod Mishra

Monash Business School ( email )

Monash University
Clayton, Victoria 3800
Australia
+61 03 99050038 (Phone)

HOME PAGE: http://users.monash.edu.au/~mishra/

Russell Smyth

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

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