Testing for stationarity in large panels with cross-dependence, and US evidence on unit labor cost

A new stationarity test for heterogeneous panel data with large cross-sectional dimension is developed and used to examine a panel with growth rates of unit labor cost in the USA. The test allows for strong cross-unit dependence in the form of unbounded long-run correlation matrices, for which a simple parameterization is proposed. A KPSS-type distribution results asymptotically if letting T→∞ be followed by N→∞. Some evidence against stationarity (short memory) is found for the examined series.