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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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    File URL: http://hdl.handle.net/10943/142
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    References listed on IDEAS

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    1. Daron Acemoglu & Simon Johnson, 2007. "Disease and Development: The Effect of Life Expectancy on Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 925-985, December.
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    4. Chen, Yu-Fu & Zoega, Gylfi, 2010. "An essay on the generational effect of employment protection," Mathematical Social Sciences, Elsevier, pages 349-359.
    5. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
    6. Watson, Tara, 2006. "Public health investments and the infant mortality gap: Evidence from federal sanitation interventions on U.S. Indian reservations," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1537-1560, September.
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    8. Piscitelli, Laura & Cross, Rod & Grinfeld, Michael & Lamba, Harbir, 2000. "A Test for Strong Hysteresis," Computational Economics, Springer;Society for Computational Economics, vol. 15(1-2), pages 59-78, April.
    9. Rod Cross & Michael Grinfeld & Laura Piscitelli, 1999. "Hysteresis in Economic Systems," Computing in Economics and Finance 1999 723, Society for Computational Economics.
    10. Hoyt Bleakley, 2007. "Disease and Development: Evidence from Hookworm Eradication in the American South," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 73-117.
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    More about this item

    Keywords

    Hysteresis; hiring and firing costs; heterogeneous workers;

    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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