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Hysteresis and Insider-Outside Theory - A Literature Review


  • Michael Dobbie

    () (Department of Economics, Macquarie University)


In recent years a large theoretical and empirical literature has emerged on hysteresis in unemployment. This paper reviews the theoretical part of this literature, including the various insider-outsider models that have been advanced to explain hysteresis. The review finds that while the assumptions required to generate full hysteresis are somewhat extreme, a less severe form of hysteresis, called persistence, emerges quite readily from models with reasonable assumptions. The paper however questions the extent to which the recent experience of unemployment can be explained by this approach.

Suggested Citation

  • Michael Dobbie, 2004. "Hysteresis and Insider-Outside Theory - A Literature Review," Research Papers 0408, Macquarie University, Department of Economics.
  • Handle: RePEc:mac:wpaper:0408

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    Cited by:

    1. Ondřej Čížek, 2015. "Makroekonometrický model eurozóny
      [Macroeconometric Model of the Eurozone]
      ," Politická ekonomie, University of Economics, Prague, vol. 2015(3), pages 279-299.

    More about this item


    Hysteresis; persistence; insider-outsider theory;

    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
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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