Hysteresis in Unemployment

14 Pages Posted: 15 Jan 2007 Last revised: 26 Jul 2010

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: October 1986

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.

Suggested Citation

Blanchard, Olivier J. and Summers, Lawrence H., Hysteresis in Unemployment (October 1986). NBER Working Paper No. w2035. Available at SSRN: https://ssrn.com/abstract=344826

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Peter G. Peterson Institute for International Economics ( email )

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Lawrence H. Summers

Harvard University ( email )

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Cambridge, MA 02138
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617-495-1502 (Phone)
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

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Cambridge, MA 02138
United States

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