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The Macroeconomics of the Labor Market: Three Fundamental Views

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Author Info
Marika Karanassou
Hector Sala
Dennis Snower

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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 ‡uctuations 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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Publisher Info
Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1378.

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Length: 32 pages
Date of creation: Sep 2007
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Handle: RePEc:kie:kieliw:1378

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

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Marika Karanassou & Hector Sala & Dennis J. Snower, 2003. "Unemployment in the European Union: Institutions, Prices, and Growth," Working Papers 493, Queen Mary, University of London, Department of Economics. [Downloadable!]
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  2. Martin Flodén, 2006. "Labour Supply and Saving Under Uncertainty," Economic Journal, Royal Economic Society, vol. 116(513), pages 721-737, 07. [Downloadable!] (restricted)
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  3. Karanassou, Marika & Sala, Hector & Snower, Dennis, 2003. "Unemployment in the European Union: a dynamic reappraisal," Economic Modelling, Elsevier, vol. 20(2), pages 237-273, March. [Downloadable!] (restricted)
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  4. Lindbeck, Assar & Snower, Dennis J, 1987. "Strike and Lock-Out Threats and Fiscal Policy," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 760-84, December. [Downloadable!] (restricted)
  5. Karanassou, Marika & Snower, Dennis J., 1997. "Is the natural rate a reference point?," European Economic Review, Elsevier, vol. 41(3-5), pages 559-569, April. [Downloadable!] (restricted)
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  6. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2004. "Unemployment, Growth and Fiscal Policy: New Insights on the Hysteresis Hypothesis," IZA Discussion Papers 1127, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
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  8. Henry, Brian & Karanassou, Marika & Snower, Dennis J, 2000. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.
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  9. Marika Karanassou & Dennis J. Snower, 2004. "Unemployment Invariance," German Economic Review, Blackwell Publishing, vol. 5(3), pages 297-317, 08. [Downloadable!] (restricted)
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  10. Heikki Kauppi & Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  11. Marika Karanassou & Hector Sala & Dennis J. Snower, 2006. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," IZA Discussion Papers 2265, Institute for the Study of Labor (IZA). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anna Matas Prats & José Luís Raymond Bara & José Luís Raymond Bara, 2008. "Job accessibility and employment probability," Working Papers XREAP2008-5, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2008. [Downloadable!]
  2. Christian Durán Weitkamp & Mónica Martín Bofarull & Federico Pablo Martí, 2008. "Economic effects of road accessibility in the Pyrenees: user perspective," Working Papers XREAP2008-1, Xarxa de Referència en Economia Aplicada (XREAP), revised Jan 2008. [Downloadable!]
  3. Anna Matas & José-Luís Raymond & José-Luís Roig, 2008. "Car ownership and access to jobs in Spain," Working Papers XREAP2008-3, Xarxa de Referència en Economia Aplicada (XREAP), revised Apr 2008. [Downloadable!]
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