Is Unemployment Hysteria Valid in Turkey? Empirical Evidence from Unit Root Tests with Structural Breaks

The primary objective of this study is to assess the validity of the unemployment hysteresis hypothesis in Turkey and provide empirical evidence. Annual data on the unemployment rate for individuals aged 15 and over in Turkey from 1999 to 2023 are utilized. If the unemployment hysteresis hypothesis holds, a shock affecting the series is expected to have a lasting impact in the long run. To investigate the stationarity of the series, structural break unit root tests have been applied. The widely used Lagrange Multiplier (LM) type single-break test by Lee and Strazicich (2013) and the two-break test by Lee and Strazicich (2003) are employed. The identified break dates correspond to the 2001 and 2008 financial crises, which significantly disrupted Turkey’s macroeconomic stability. The test results indicate that the unemployment series is stationary, with shocks having no permanent impact. Consequently, over the examined period, unemployment hysteresis is found to be invalid in Turkey, and economic shocks are shown to have only temporary effects on unemployment rates.