Hysteresis in Economic Theory of Unemployment: Pertinence and Imlications

L'hypothèse d'hystérésis dans la théorie économique du chômage: pertinence et implications

Jean-Marie Le Page ()

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Abstract: This paper studied the theoretical foundations and implications of the "hysteresis effect" proposed by E. S. Phelps in 1972. In the first part, a survey of the main causes and empirical proofs of this phenomenon was presented for the developed countries. I showed that the evidence of hysteresis might be directly or indirectly established. The second part of the paper studied the evolution of unemployment rate in case of hysteresis. In the prevailing studies of this matter, the influence of economic growth on the employment was lacking. Therefore, a very simple model integrating the growth rate to the analysis was proposed. Particularly, it enabled to explain the cyclical time shape of the unemployment rate in the USA and the more regular evolution of this rate in Europe. I attempted to fit this model to the data of eight O.E.C.D. countries. The predicting power of the estimates was then tested. Results were satisfactory. Hysteresis effects on economic policy were presented in the last part of the paper : a tradeoff between inflation and unemployment has been partly restored as well as the efficiency of dynamic policies in the field of employment.

Keywords: Unemployment rate; hysteresis; unemployment theory; growth employment relationship; Taux de chômage; hystérésis; théorie du chômage; relation croissance-emploi (search for similar items in EconPapers)
Date: 1991
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Published in Revue d'économie politique, 1991, 101 (2), pp.281-299

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04009905

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