Why Does Unemployment Persist?
The main movements of unemployment correspond to fluctuations in the short-run non-accelerating-inflation rate of unemployment (around a stable long-term non-accelerating-inflation rate of unemployment). These supply-side fluctuations have two main origins: (1) variations in the number of "insiders" involved in wage-setting; and (2) variations in the effectiveness of the unemployed "outsiders" as potential job-seekers. The evidence of micro studies suggests that (2) is more important than (1), and this also helps to explain the widespread shift outwards in the u/v curve. To derive these arguments rigorously, the paper presents a simple model of efficiency wages, another of collective bargaining, and finally a fully dynamic model with labor market flows. Copyright 1989 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 91 (1989)
Issue (Month): 2 ()
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