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The Macroeconomics of the Labor Market: Three Fundamental Views

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  • Karanassou, Marika

    ()
    (Queen Mary, University of London)

  • Sala, Hector

    ()
    (Universitat Autònoma de Barcelona)

  • Snower, Dennis J.

    ()
    (Kiel Institute for the World Economy)

Abstract

We distinguish and assess three fundamental views of the labor market regarding the movements in unemployment: (i) the frictionless equilibrium view; (ii) the chain reaction theory, or prolonged adjustment view; and (iii) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short and long run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long runs are interrelated, merging with one another along an intertemporal continuum.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2480.

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Length: 34 pages
Date of creation: Dec 2006
Date of revision:
Publication status: published in: Portuguese Economic Journal, 2007, 6 (3), 151-180
Handle: RePEc:iza:izadps:dp2480

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Keywords: interplay of lags and shocks; growth drivers; interactive labor market dynamics; unemployment; frictional growth;

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References

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  1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Lindbeck, A., 1993. "The Welfare State and the Employment Problem," Papers 561, Stockholm - International Economic Studies.
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  4. Karanassou, Marika & Sala, Héctor & Snower, Dennis J., 2003. "Unemployment in the European Union: A dynamic reappraisal," Open Access Publications from Kiel Institute for the World Economy 2933, Kiel Institute for the World Economy (IfW).
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Citations

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Cited by:
  1. Ronald Schettkat & Rongrong Sun, 2008. "Monetary Policy and European Unemployment," Schumpeter Discussion Papers sdp08002, Universitätsbibliothek Wuppertal, University Library.
  2. Pablo, Agnese & Hector, Sala, 2008. "Unemployment in Japan: A look at the ‘lost decade’," MPRA Paper 14332, University Library of Munich, Germany.
  3. Ronald Schettkat & Rongrong Sun, 2009. "Nicht zu früh bremsen! - Der Einfluss der Geldpolitik auf die langfristige Wirtschaftsentwicklung in Deutschland und den USA-," Schumpeter Discussion Papers sdp09003, Universitätsbibliothek Wuppertal, University Library.
  4. Agnese, Pablo & Sala, Hector, 2008. "The fading 1990s in Japan: Driving forces behind the unemployment upsurge," MPRA Paper 16501, University Library of Munich, Germany.
  5. Christian Durán Weitkamp & Mónica Martín Bofarull & Federico Pablo Martí, 2008. "Economic effects of road accessibility in the Pyrenees: user perspective," Working Papers XREAP2008-01, Xarxa de Referència en Economia Aplicada (XREAP), revised Jan 2008.
  6. Martin Leites & Sylvina Porras, 2013. "El enfoque de la Reacción en Cadena: una aplicación para explicar la dinámica del desempleo en Uruguay," Documentos de Trabajo (working papers) 13-11, Instituto de Economía - IECON.
  7. Anna Matas & José-Luís Raymond & José-Luís Roig, 2008. "Car ownership and access to jobs in Spain," Working Papers XREAP2008-03, Xarxa de Referència en Economia Aplicada (XREAP), revised Apr 2008.
  8. Anna Matas Prats & José Luís Raymond Bara & José Luís Raymond Bara, 2008. "Job accessibility and employment probability," Working Papers XREAP2008-05, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2008.
  9. Antonio Manresa & Ferran Sancho, 2012. "Leontief versus Ghosh: two faces of the same coin," Working Papers XREAP2012-18, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2012.

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