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Strong Hysteresis due to Age Effects

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  • Chen, Yu-Fu
  • Zoega, Gylfi

Abstract

Strong hysteresis in the labour market (see Cross, 1995) requires workers to be heterogeneous in terms of the cost of hiring and firing. We show how such heterogeneity arises naturally in labour markets due to differences in workers’ age by showing that both the hiring and the firing thresholds for productivity are age dependent. The presence of strong hysteresis does not for this reason depend on ad-hoc differences in the cost of hiring and firing workers.

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File URL: http://repo.sire.ac.uk/handle/10943/142
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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-09.

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Date of creation: 2010
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Handle: RePEc:edn:sirdps:142

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Keywords: Hysteresis; hiring and firing costs; heterogeneous workers;

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  1. Assar Lindbeck & Dennis J. Snower, 1989. "The Insider-Outsider Theory of Employment and Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262074x, December.
  2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  3. Rod Cross & Michael Grinfeld & Laura Piscitelli, 1999. "Hysteresis in Economic Systems," Computing in Economics and Finance 1999 723, Society for Computational Economics.
  4. Laura Piscitelli, . "A Test for Strong Hysteresis," Computing in Economics and Finance 1997 2, Society for Computational Economics.
  5. Amable, Bruno & Henry J & Lordon F & Topol R, 1992. "Hysteresis : what it is and what it is not ?," CEPREMAP Working Papers (Couverture Orange) 9216, CEPREMAP.
  6. Yu-Fu Chen & Gylfi Zoega, 2009. "An essay on the generational effect of employment protection," Birkbeck Working Papers in Economics and Finance 0915, Birkbeck, Department of Economics, Mathematics & Statistics.
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