The Macroeconomics of the Labor Market: Three Fundamental Views

Marika Karanassou (), Hector Sala () and Dennis J. Snower ()
Additional contact information
Hector Sala: Universitat Autònoma de Barcelona
Dennis J. Snower: Hertie School of Governance

No 2480, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: interplay of lags and shocks; growth drivers; interactive labor market dynamics; unemployment; frictional growth (search for similar items in EconPapers)
JEL-codes: E22 E24 J21 J30 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006-12
New Economics Papers: this item is included in nep-cse, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Portuguese Economic Journal, 2007, 6 (3), 151-180

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Related works:
Journal Article: The macroeconomics of the labor market: three fundamental views (2007)
Working Paper: The Macroeconomics of the Labor Market: Three Fundamental Views (2007)
Working Paper: The macroeconomics of the labor market: Three fundamental views (2007)
Working Paper: The macroeconomics of the labor market: Three fundamental views (2006)
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