Cointegration and Structural Breaks in German Employment – An Error-Correction Interpretation / Kointegration und Strukturbrüche in der deutschen Beschäftigung – Eine Fehlerkorrektur-Auslegung

Summary In order to differentiate between unit root-persistence and structural break-hysteresis we estimate two types of cointegration models for West German employment. The standard model is compared with a model including structural breaks in the long-run relation between employment and its determinants. Our estimation shows that persistence is probably attributed to structural breaks in the long-run relation and not to a degenerating adjustment process. Thus, a unit root in the standard model possibly reveals a misspecification in the form of an ex-ante exclusion of the possibility of structural breaks in the equilibrium relation due to serious economic shocks.