Are Shocks Permanent? The Dynamics of Stagnation and Hysteria in Turkey's Unemployment Rate and Proposed Solutions ThroughTourism

Abstract

This study tests the validity of the hysteresis hypothesis in unemployment by analyzing the long-term behavior of the unemployment rate in Turkey using annual data from 1988 to 2023. The hysteresis hypothesis posits that economic shocks create lasting effects on unemployment, preventing the series from returning to its previous equilibrium level. Within this framework, the stationarity properties of the unemployment rate were examined using ADF and PP unit root tests, while structural breaks were examined using Zivot–Andrews and Lee–Strazicich tests. Empirical findings show that the unemployment rate is not stationary at the level, follows an I(1) process, and that the effects of shocks are persistent rather than temporary. The Zivot–Andrews test detected significant structural breaks in the 2009 period, while the Lee–Strazicich test detected them in 2001 and 2018; however, despite the structural breaks, neither test rejected the unit root hypothesis. The results obtained show that unemployment shocks in Turkey are permanent in nature and that the labor market struggles to return to its natural equilibrium level due to loss of flexibility, skill mismatches, and institutional weaknesses. On the other hand, the study did not directly analyze the impact of tourism on unemployment, but emphasized that the tourism sector could play a buffering role in the labor market against economic shocks, and that structural reforms and sector diversification play an important role in reducing the persistence of unemployment. These findings indicate that unemployment is a structural problem in the Turkish economy and that long-term, comprehensive employment and education policies are necessary for lasting improvement, rather than short-term interventions.