The macroeconomics of the labor market: Three fundamental views

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 2480

Classification and Topics

• Classification: Wirtschaft ; Wages, Compensation, and Labor Costs: General ; Investment; Capital; Intangible Capital; Capacity ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Labor Force and Employment, Size, and Structure
• Subject: Interactive labor market dynamics ; Interplay of lags and shocks ; Frictional growth ; Growth drivers ; Unemployment ; Theorie der Arbeitslosigkeit ; Arbeitsmarkt ; Theorie ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karanassou, Marika ; Sala, Héctor ; Snower, Dennis J.
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/4041
• Last update: 10.03.2025, 11:43 AM CET