The High Unemployment Trap

Gilles Saint-Paul

No 670, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A model of the labour market under firing restrictions and endogenous quits is constructed. It is shown that in the spirit of Blanchard and Summers (1988), the model can generate multiple equilibria, with a low-quits/high-unemployment equilibrium coexisting with a high-quits/low-unemployment equilibrium. Under weak conditions, low-unemployment equilibria Pareto dominate high-unemployment equilibria. Mobility premia improve aggregate welfare but may increase unemployment.

Keywords: Flexibility; Labour Market; Labour Mobility; Unemployment (search for similar items in EconPapers)
JEL-codes: D21 E23 E24 J22 J23 J63 J64 (search for similar items in EconPapers)
Date: 1992-07
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Related works:
Journal Article: The High Unemployment Trap (1995)
Working Paper: THE HIGH UNEMPLOYMENT TRAP (1991)
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