Hysteresis and the European Unemployment Problem
In: NBER Macroeconomics Annual 1986, Volume 1
European unemployment has been steadily increasing for the last 15 years and is expected to remain very high for many years to come. In this paper, we argue that this fact implies that shocks have much more persistent effects on unemployment than standard theories can possibly explain. We develop a theory which can explain such persistence, and which is based on the distinction between insiders and outsiders in wage bargaining. We argue that if wages are largely set by bargaining between insiders and firms, shocks which affect actual unemployment tend also to affect equilibrium unemployment. We then confront the theory to both the detailed facts of the European situation as well as to earlier periods of high persistent unemployment such as the Great Depression in the US.
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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.:
- Oliver Hart, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 109-138.
- John Y. Campbell & N. Gregory Mankiw, 1987.
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- Kim B. Clark & Lawrence H. Summers, 1982. "Labour Force Participation: Timing and Persistence," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 825-844.
- Kim B. Clark & Lawrence H. Summers, 1982. "Labor Force Participation: Timing and Persistence," NBER Working Papers 0977, National Bureau of Economic Research, Inc.
- Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162. Full references (including those not matched with items on IDEAS)
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