The High Unemployment Trap
AbstractA model of the labour market under firing restrictions and endogenous quits is constructed. It is shown that in the spirit of Blanchard and Summers (1988), the model can generate multiple equilibria, with a low-quits/high-unemployment equilibrium coexisting with a high-quits/low-unemployment equilibrium. Under weak conditions, low-unemployment equilibria Pareto dominate high-unemployment equilibria. Mobility premia improve aggregate welfare but may increase unemployment.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 670.
Date of creation: Jul 1992
Date of revision:
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Other versions of this item:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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