Investigation of unemployment dynamics in Turkey: An empirical analysis on the effect of hysteresis

Unemployment is one of the most important economic problems for all economies, especially for developing economies. One of the important factors causing unemployment is the economic crisis. In a crisis period, unemployment can reach serious levels and cause socioeconomic problems. Economic crises can cause unemployment to become permanent. In this sence, especially in developing economies, unemployment does not return to its previous level in the post-crisis periods, and the unemployment problem may become permanent. In this context, the hysteresis effect is that unemployment does not return to its previous level after the crisis and that unemployment persists for a long time. In summary, according to the hysteresis effect, a shock to the economy prevents unemployment rates from reaching equilibrium in the long run. And this thesis aims to investigate unemployment hysteresis, which is particularly effective in developing economies, in the Turkish economy. For this purpose, the validity of the hysteresis effect was analysed by using unemployment data (total unemployment, female unemployment, male unemployment, total youth unemployment, female youth unemployment and male youth unemployment) fort he 1988-2020 period. In the analysis, both traditional unit root tests (Augmented Dickey-Fuller-ADF, Phillips-Perron-PP, Kwiatkowski, Phillips, Schmidt, Shin-KPSS, and NG-Perron) and structural break unit root tests (Perron 1989, Zivot et al., Andrews-ZA, Lee-Strazicich-LS, and Narayan-Popp) were used. According to findings optained, in the Turkish economy after a shock, unemployment (total unemployment, female unemployment, male unemployment, total youth unemployment, female youth unemployment, and male youth unemployment) does not return to its previous level, and it becomes permanent. In other words, according to both traditional and structural break-unit root tests, it has been found that the hysteria effect is valid in the Turkish economy. Therefore, this situation poses a significant problem for the Turkish economy. Fort his reason, technological developments and innovation should be encouraged to eliminate the hysteresis effect. Since technology and innovation will increase productivity in the economy and provide new employment areas, should produce policies for technology and innovation.