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Title:The macroeconomics of the labor market: Three fundamental views PDF Logo
Authors:Karanassou, Marika
Sala, Héctor
Snower, Dennis J.
Issue Date:2006
Series/Report no.:IZA Discussion paper series 2480
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.
Subjects:Unemployment
Interactive labor market dynamics
Interplay of lags and shocks
Frictional growth
Growth drivers
JEL:J30
E22
E24
J21
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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