Has COVID-19 caused a change in the dynamics of the unemployment rate? The case of North America and continental Europe

Abstract

This study raises the question of whether the COVID-19 pandemic will have a long-lasting impact on the dynamics of the unemployment rate. More specifically, this problem implies an analysis of whether any sign of a structural break is detectable in the time series of the unemployment rate. To obtain some "firsthand" estimates on whether it is likely that a structural break will occur in the labour market, this study performs several one-step-ahead forecasts based on the best ARIMA model on the time series of the unemployment rate, which takes advantage of the availability of the unemployment rate data for five quarters following the pandemic outbreak. Interestingly, the results document practically no difference in the impact of the pandemic on the labour market in countries with different labour market flexibility. Neither North America (United States of America and Canada) with a flexible labour market nor continental Europe (Germany and Austria) with a regulated labour market experienced any regime change in the unemployment rate time series.