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Hysteresis and Unemployment

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  • Olivier J. Blanchard

Abstract

The recent European experience of high persistent unemployment has led to the development of theories of unemployment hysteresis embodying the idea that the equilibrium unemployment rate depends on the history of the actual unemployment rate. This paper summarizes two directions of research on hysteresis that appear especially promising. Membership theories are based on the distinction between insiders and outsiders and explore the idea that wage setting is largely determined by firms' incumbent workers rather than by the unemployed. Duration theories explore the idea that the long term unemployed exert much less downwards pressure on wages than do the short term unemployed.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Olivier J. Blanchard, 1986. "Hysteresis and Unemployment," Working papers 430, Massachusetts Institute of Technology (MIT), Department of Economics.
    • Handle: RePEc:mit:worpap:430
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