Is labour force participation independent of unemployment. A panel analysis for high income countries

Purpose. We test the pertinence of the unemployment invariance hypothesis (UIH) for a set of Organisation for Economic Co-operation and Development countries. Design/methodology/approach. We empirically investigate the nexus between unemployment and labour force participation employing structural vector autoregressive methods for panel data. Findings. We find that shocks in unemployment produce long-lasting, negative effects on participation, testifying to a discouraged worker effect. Originality/value. Our results do not support the validity of the UIH in high-income economies. This has relevant implications for policy making and macroeconomic models.