The Macroeconomics of the Labor Market: Three Fundamental Views

34 Pages Posted: 13 Dec 2006

See all articles by Marika Karanassou

Marika Karanassou

University of London, Queen Mary - Department of Economics; Institute for the Study of Labor (IZA)

Hector Sala

Autonomous University of Barcelona - Department of Applied Economics; IZA Institute of Labor Economics

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

We distinguish and assess three fundamental views of the labor market regarding the movements in unemployment: (i) the frictionless equilibrium view; (ii) the chain reaction theory, or prolonged adjustment view; and (iii) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short and long run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long runs are interrelated, merging with one another along an intertemporal continuum.

Keywords: unemployment, interactive labor market dynamics, interplay of lags and shocks, frictional growth, growth drivers

JEL Classification: E22, E24, J21, J30

Suggested Citation

Karanassou, Marika and Sala Lorda, Hector and Snower, Dennis J., The Macroeconomics of the Labor Market: Three Fundamental Views (December 2006). IZA Discussion Paper No. 2480, Available at SSRN: https://ssrn.com/abstract=950947

Marika Karanassou

University of London, Queen Mary - Department of Economics ( email )

Mile End Road
London, E1 4NS
United Kingdom
+44 20 7975 5090 (Phone)
+44 20 7983 3580 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Hector Sala Lorda (Contact Author)

Autonomous University of Barcelona - Department of Applied Economics ( email )

Departament d'Economia Aplicada
Bellaterra, 08193
Spain
+34 93 581 2779 (Phone)
+34 93 581 2292 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW) ( email )

Duesternbrooker Weg 120
D-24118 Kiel
Germany
+49+431-8814-235 (Phone)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
162
Abstract Views
1,490
rank
197,540
PlumX Metrics