Unemployment Persistence Structural Factors Hysteresis

Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.

In The Persistence of Unemployment Stephen Jones presents a comprehensive assessment of persistent unemployment, specifically hysteresis, in Canadian labour markets.

This paper develops and estimates a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession and over the entire postwar period.

Theory of Macroeconomic Policy reviews the theoretical foundations of macroeconomic, fiscal, and monetary, policy. It offers a panoramic view of macroeconomic theory, covering a wide range of topics that are not customarily dealt with in macroeconomics texts, as well as more standard material. Advanced theory is bridged with more elementary or intermediate material, and established models are reviewed alongside current research directions. There is an extensive review of empirical evidence on virtually every topic, supplemented by narrative accounts for various episodes. The policy implications of the various theories are emphasised throughout. The chapters are largely self-contained so that different courses can focus at different places. A 'Guidance for Further Study' Section and extensive bibliography give plenty of ideas for all levels of independent study, from Undergraduate Projects to MSc Dissertations to PhD Theses. Theory of Macroeconomic Policy presents a balance between: breadth as well as depth; analytical treatment and intuition; theory and evidence; vintage theories and current directions; theory and policy; (established) theory and debate. Theory of Macroeconomic Policy is an affirmation that there is a well-developed body of theory that is invaluable for an in-depth understanding of the macro-economy and policy; equally, there is much scope for critical discussion and debate.

There is a specter haunting advanced industrial countries: structural unemployment. Recent years have seen growing concern over declining jobs, and though corporate profits have picked up after the Great Recession of 2008, jobs have not. It is possible that “jobless recoveries” could become a permanent feature of Western economies. This illuminating book focuses on the employment futures of advanced industrial countries, providing readers with the sociological imagination to appreciate the bigger picture of where workers fit in the new international division of labor. The authors piece together a puzzle that reveals deep structural forces underlying unemployment: skills mismatches caused by a shift from manufacturing to service jobs; increased offshoring in search of lower wages; the rise of advanced communication and automated technologies; and the growing financialization of the global economy that aggravates all of these factors. Weaving together varied literatures and data, the authors also consider what actions and policy initiatives societies might take to alleviate these threats. Addressing a problem that should be front and center for political economists and policymakers, this book will be illuminating reading for students of the sociology of work, labor studies, inequality, and economic sociology.