Does Hysteresis Exist in Unemployment? New Findings from Fourteen Regions of the Czech Republic

The present study chose 14 regions of the Czech Republic as case studies to examine the existence of unemployment hysteresis. To carry out the empirical analysis, it used the SURADF test and the FADF test. The empirical findings from the ADF tests suggested that unemployment in all 14 regions could be described as a non-stationary process. However, the results obtained from the more powerful SURADF test and the non-linear FADF test indicated that the unemployment rates in nine regions could have a unit root in accordance with the hysteresis hypothesis. These regions are Prague-city (Praha), Plzen (Plzenský), Karlovy Vary (Karlovarský), Ústí (Ústecký), Liberec (Liberecký), Hradec Králové (Královohradecký), Pardubice (Pardubický), South Moravia (Jihomoravský) and Olomouc (Olomoucký). By contrast, unemployment in the remaining five regions, namely Central Bohemia (Stredoceský), South Bohemia (Jihoceský), Vysocina, Zlín (Zlínský) and Moravia-Silesia (Moravskoslezský), could be described as a stationary process in line with the natural rate hypothesis. This means that unemployment hysteresis was not found in these five regions.