Transitory shock or structural shift? The impact of the early 1980s recession on British regional unemployment

This paper examines the impact of the early 1980s recession on regional unemployment in Britain. More specifically, it seeks to evaluate the hypothesis that this recessionary shock was so severe that it caused an upward structural shift in the underlying mean unemployment rates of the regions. This proposition is analysed using Dickey-Fuller tests for difference versus trend stationarity, and the augmented structural shift and trend break time-series models developed by Perron. The results suggest that the apparent stochastic non-stationarity in regional unemployment over the period 1965-95 is in fact due to an upward structural shift in regional mean unemployment rates in 1980. Furthermore, the nature of this shift appears to have differed as between the northern and southern regions of the country.