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Empirical essays on unemployment and business cycles
Stockholm University, Faculty of Social Sciences, Department of Economic History and International Relations.ORCID iD: 0000-0002-4718-6434
2020 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This dissertation examines business cycles in Sweden, and the patterns in and driving forces of short- and long-term movements in unemployment in a selection of high-income countries throughout the 20th century. While this has been studied numerous times before, this dissertation starts from the point of view that there is no consensus in social science on how to understand these phenomena. This study consists of an introductory chapter and four related but self-contained papers. One contribution of this thesis is the use of temporal disaggregation methods to estimate more detailed time series on gross domestic product (GDP) and unemployment. New quarterly estimates of GDP are then used, with the help of the Bry-Boschan algorithm, to reconstruct the Swedish business cycle in the period 1913–2014. This identifies a number of new patterns not visible in the annual data. A second contribution is different analyses of the extent to which unemployment can be explained by macroeconomic indicators such as GDP growth, capital formation and productivity. Different methods, such as band spectrum regression and wavelet analysis, are used to capture longer-term effects. Numerous results are presented that indicate that macroeconomic performance, notably capital formation, can have medium- to long-term effects on unemployment. This is in line with theoretical models on equilibrium unemployment that take account of the possibility of persistence in the return to long-run equilibrium, or models that comprise more than one unemployment equilibria. While this is not unknown in previous research, it contradicts several highly influential versions of equilibrium unemployment models, as well as a great body of research on the subject. These contributions have several important implications for future research. Historical chronologies should take account of the possibility that data of higher or lower frequency may lead to important differences in results. Empirical and theoretical research on labor markets should continue to investigate more deeply the possibility that unanticipated short-term events can have long-term effects on labor market outcomes.

Place, publisher, year, edition, pages
Stockholm: Department of Economic History and International Relations, Stockholm university , 2020. , p. 45
Keywords [en]
business cycles, Okun’s law, unemployment, capital formation, temporal disaggregation, band spectrum regression, wavelet analysis
National Category
Economic History
Research subject
Economic History
Identifiers
URN: urn:nbn:se:su:diva-177231ISBN: 978-91-7797-821-3 (print)ISBN: 978-91-7797-822-0 (electronic)OAI: oai:DiVA.org:su-177231DiVA, id: diva2:1380468
Public defence
2020-02-28, Nordenskiöldsalen, Geovetenskapens hus, Svante Arrhenius väg 12, Stockholm, 13:00 (Swedish)
Opponent
Supervisors
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0133Ragnar Söderbergs stiftelse
Note

At the time of the doctoral defense, the following papers were unpublished and had a status as follows: Paper 2: Manuscript. Paper 3: Manuscript. Paper 4: Manuscript.

Available from: 2020-02-05 Created: 2019-12-18 Last updated: 2020-02-05Bibliographically approved
List of papers
1. The Business Cycle in Historical Perspective: Reconstructing Quarterly Data on Swedish GDP, 1913-2014
Open this publication in new window or tab >>The Business Cycle in Historical Perspective: Reconstructing Quarterly Data on Swedish GDP, 1913-2014
2018 (English)In: Journal of European Economic History, ISSN 0391-5115, E-ISSN 2499-8281, no 1, p. 33-60Article in journal (Refereed) Published
Abstract [en]

We present an estimation of quarterly GDP for Sweden stretchingback to 1913, using higher frequency series on manufacturing andprivate consumption as indicators and standard methods for tem-poral disaggregation from annual GDP data. Deseasonalization isperformed using JDemetra+ software. We use the Bry-Boschan al-gorithm to identify peaks and troughs, based on which we presentvarious chronologies of the business cycle in Sweden, indicating apartially new picture of the country’s economic growth over the last100 years.

Keywords
GDP, Sweden, business cycle
National Category
Economic History
Research subject
Economic History
Identifiers
urn:nbn:se:su:diva-156527 (URN)
Projects
Business cycles, bubbles and debt in Swedish history
Available from: 2018-05-22 Created: 2018-05-22 Last updated: 2019-12-18Bibliographically approved
2. Can capital formation explain why unemployment has increased since the 1970s in the OECD countries?
Open this publication in new window or tab >>Can capital formation explain why unemployment has increased since the 1970s in the OECD countries?
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper tests to what extent the increase of unemployment in many OECD countries since the 1970s may be explained by capital formation. Using an unbalanced macro panel dataset, this study also controls for a selection of variables pointed out by earlier research such as the unemployment replacement rate and the tax wedge. Novel contributions includes an exploration of heterogeneous correlations across countries and time, and potential interaction effects between capital formation and other explanatory variables. Results indicate that unemployment primarily can be explained by a decrease in capital formation and an increase in long-term real interest rates and the tax wedge. Results do not support interaction effects between capital formation and other variables. Results indicate that capital formation and real interest rate deserves more attention in discussions on unemployment.

Keywords
Unemployment, capital formation
National Category
Economic History
Research subject
Economic History
Identifiers
urn:nbn:se:su:diva-177217 (URN)
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0133
Available from: 2019-12-18 Created: 2019-12-18 Last updated: 2019-12-19Bibliographically approved
3. Testing Okun's law on different frequencies: Reconstructing monthly unemployment and GDP for Sweden 1913–2014
Open this publication in new window or tab >>Testing Okun's law on different frequencies: Reconstructing monthly unemployment and GDP for Sweden 1913–2014
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper presents an analysis on the relation between unemployment and GDP, famously observed by Okun (1962). Three versions of the law is estimated, using monthly, quarterly, annual and 5-year observations for Sweden 1913–2014: the difference version (unemployment change and real GDP growth), the dynamic version with lags, and the gap version (unemployment and GDP deviations from trends). I find a robust, statistically significant, negative relation between real GDP growth and unemployment, as well as deviation from trends, but with heterogeneous results over frequencies. The difference and dynamic version of Okun's law indicate that an increase of 1 percent annual or 5-year real GDP growth coincides with a 0.1 to 0.19 percentage point decrease in the unemployment rate. Results for monthly and quarterly data are close to zero. A one percent positive deviation of GDP growth from the trend corresponds with a negative deviation for unemployment from the trend with 0.03, 0.03 and 0.09 percentage point for monthly, quarterly and annual data, respectively. Rolling regressions using 13 years of data per sub sample indicate that the correlation between GDP and unemployment is robust for annual data during most of the time period, and not statistically significant for most periods using monthly and quarterly data. The monthly data on unemployment and GDP used for the analysis is estimated through temporal disaggregation of quarterly GDP and annual unemployment.

Keywords
Monthly GDP, Quarterly GDP, temporal disaggregation, Okun's law. JEL: E32, E37
National Category
Economic History
Research subject
Economic History
Identifiers
urn:nbn:se:su:diva-177229 (URN)
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0133Ragnar Söderbergs stiftelse
Available from: 2019-12-18 Created: 2019-12-18 Last updated: 2019-12-19Bibliographically approved
4. What determines unemployment in the long run? Band spectrum regression on ten countries 1913-2016
Open this publication in new window or tab >>What determines unemployment in the long run? Band spectrum regression on ten countries 1913-2016
(English)Manuscript (preprint) (Other academic)
Abstract [en]

The rise in unemployment since the 1980s has been predominantly understood as driven by short-term shocks and rigid labor market institutions (Blanchard and Wolfers, 2000; Layard et al., 2005), while others have pointed to 'jobless growth' and job matching (Pissarides, 2000). While most studies focus on short-run explanations, this paper presents an analysis of the long-run determinants of unemployment. To the best of our knowledge, no previous cross-country study has investigated the long-run relationship between unemployment and macroeconomic performance over a time period that stretches before the 1960s. To address this issue, we use wavelet analysis to decompose time series covering ten countries 1913-2016, into short-, medium-, and long-run variations, and band spectrum regressions on the relation between unemployment, GDP, investment, interest rate and productivity. This methodology has several advantages compared to standard econometrical methods and other tools for decomposition. Through estimations of cross-country regression models, we find strong indications that unemployment correlates negatively with the long-run components of investment. About 17 percent of overall variations and 29 percent of long-run variations in unemployment are explained by long-run variations in capital formation. In structural break models on each of the ten countries we find that capital formation explains between 43 percent and 84 percent of variations in unemployment. For most countries, long-run shifts in capital formation are associated with long-run shifts in unemployment in the opposite direction. Our analysis hence suggests the importance of understanding aggregate demand and capital formation if we wish to understand long-term labor market outcomes.

Keywords
Unemployment, wavelets, capital formation
National Category
Economic History
Research subject
Economic History
Identifiers
urn:nbn:se:su:diva-177230 (URN)
Funder
Ragnar Söderbergs stiftelseThe Jan Wallander and Tom Hedelius Foundation, P15-0133
Available from: 2019-12-18 Created: 2019-12-18 Last updated: 2019-12-19Bibliographically approved

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