Testing for Stationarity in Large Panels with Cross-Dependence, and US Evidence on Unit Labor Cost∗

A new stationarity test for heterogeneous panel data with large cross-sectional dimension is developed and used to examine a panel with growth rates of unit labor cost in the US. The test allows for strong cross-unit dependence in the form of unbounded long-run correlation matrices, for which a simple parameterization is proposed. A KPSS-type distribution results asymptotically if letting T → ∞ be followed by N → ∞. Some evidence against stationarity (short memory) is found for the examined series