NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Hysteresis in Unemployment

Olivier J. Blanchard, Lawrence H. Summers

NBER Working Paper No. 2035 (Also Reprint No. r1316)
Issued in October 1986
NBER Program(s):   EFG   ITI   IFM

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.

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Document Object Identifier (DOI): 10.3386/w2035

Published: European Economic Review, Vol. 31, No. 1/2, pp. 288-295, (1987).

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