The unemployment invariance hypothesis and the implications of added and discouraged worker effects in Latin America

Abstract

This research explores the long-term equilibrium relationship between unemployment and labour force participation rates for six selected countries in Latin America at both aggregate and gender-disaggregated levels. Cointegration analysis focused on the study of time series is used to validate the unemployment invariance hypothesis and explore added and discouraged worker effects in depth. The results suggest mixed dynamics for the aggregate model; however, a clear gender bias is revealed towards the added worker effect for women, while the discouraged worker effect is confirmed for men. The validity of the unemployment invariance hypothesis in several countries appears to reflect some rigidities that prevent the improvement of nations’ labour markets, exposing issues that economic policies must strategically address.