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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.

Suggested Citation

  • Chen, Yu-Fu & Zoega, Gylfi, 2010. "Strong Hysteresis due to Age Effects," SIRE Discussion Papers 2010-09, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:142
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    More about this item

    Keywords

    Hysteresis; hiring and firing costs; heterogeneous workers;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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