EconStor >
Rheinische Friedrich-Wilhelms-Universität Bonn >
Zentrum für Europäische Integrationsforschung (ZEI), Universität Bonn >
ZEI Working Papers, Zentrum für Europäische Integrationsforschung, Universität Bonn >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/39555
  
Title:Rational institutions yield hysteresis PDF Logo
Authors:DiTella, Rafael
MacCulloch, Robert
Issue Date:2000
Series/Report no.:ZEI working paper B 09-2000
Abstract:We argue that labor market institutions are endogenous. Our analysis focuses on the government's decision to set unemployment benefits in response to an unemployment shock in a simple, reduced-form model of the labor market. It is found that the largest increases in benefits should occur in economies where the adverse incentive effects of benefits are largest. Adjustment costs of changing benefits can introduce hysteresis in benefit setting and unemployment. Both (very) bad and good temporary shocks (including monetary) can permanently reduce unemployment benefits and the unemployment rate. A desirable feature of the model is that the mechanism yielding hysteresis (which requires a concave utility function) ceases to operate when unemployment tends to one.
Subjects:Optimal unemployment benefits
hysteresis
natural rate of unemployment
JEL:J6
Document Type:Working Paper
Appears in Collections:ZEI Working Papers, Zentrum für Europäische Integrationsforschung, Universität Bonn

Files in This Item:
File Description SizeFormat
320266591.pdf343.54 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/39555

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.