This study aims to investigate the stability of unemployment rate in Turkey with the data set covering approximately a century and starting from 1923. The stability of the unemployment rate is examined the unit root tests, the variance ratio tests and the fractional integration models by following the studies in the literature. Almost all tests and models indicate that the unemployment rate series is not stationary. These findings show that the shocks in the economy and the stabilization policies implemented bring about permanent changes in the natural rate of unemployment. While the unemployment hysteresis leads to increasing costs in reducing inflation, it also reveals the necessity of structural reforms to reduce increased unemployment as a result of inflation control or changes in structural factors. In order to eliminate the impact of this hysteresis on economy, it is necessary to give weight to the expansionary monetary and fiscal policies, which in the short term may be costly, but this impact can be eliminated in the long term.
The Impact of Tax and Market Distortions on the Phillips Curve and the Natural Rate of Unemployment