Talk:Hysteresis (economics)

Dr. Junankar's comment on this article

Dr. Junankar has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"When some negative shock reduces employment in a company or industry, there are fewer employed workers left. As the employed workers usually have the power to influence or set wages, their reduced number incentivizes them to bargain for even higher wages when the economy again gets better, instead of letting the wage stay at the equilibrium wage level, where the supply and demand of workers would match."

Many economists argue that the labour market operates in such a way as to make the present level of unemployment depend on the previous history of the time path of unemployment: the idea of hysteresis in the labour market which leads to unemployment rates increasing with time in a "ratchet" fashion. The reasons for hysteresis are thought to be the lower probability of the long term unemployed finding work because of decreased search by them due to a loss of self esteem, because of skill atrophy (human capital is being depreciated), and employers rejecting them because they use unemployment as a signal of poor qualities. Older unemployed workers find it next to impossible to find employment, hence the unemployment rate is likely to be higher even when the market picks up. In addition, in the macroeconomic sphere the long term unemployed have no impact on wage bargaining and the non-accelerating inflation rate of unemployment (NAIRU) increases. References: Ball, L. (2009) “Hysteresis in Unemployment: Old and New Evidence”, NBER WP 14818. Summers, L.H. (2015) “US Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound”, Business Economics, 49 (2), 65-73.

Junankar, P.N. (2000) Economics of Unemployment: Causes, Consequences and Policies, (Ed.), (4 volumes), International Library of Critical Writings, Edward Elgar Publishing Limited, Cheltenham).

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Dr. Junankar has published scholarly research which seems to be relevant to this Wikipedia article:

• Reference 1: Junankar, Pramod N. (Raja) & Jayanthakumaran, Muhunthan, 2014. "Reassessing Labour Market Reforms: A Critique," IZA Discussion Papers 8385, Institute for the Study of Labor (IZA).

• Reference 2: Ham, Roger & Junankar, Pramod N. (Raja) & Wells, Robert, 2009. "Occupational Choice: Personality Matters," IZA Discussion Papers 4105, Institute for the Study of Labor (IZA).

ExpertIdeasBot (talk) 16:28, 19 May 2016 (UTC)

Dr. Valletta's comment on this article

Dr. Valletta has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

I recommend consulting and citing the following, which finds affirmative evidence in favor of unemployment hysteresis in OECD countries (but not in the U.S.):

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp441.pdf?c7a6d1edce90ab735bd52d8b57d98afd

It might also be worthwhile noting recent work on hysteresis and potential output: http://www.econ2.jhu.edu/People/Ball/long%20term%20damage.pdf

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Dr. Valletta has published scholarly research which seems to be relevant to this Wikipedia article:

• Reference : Farber, Henry & Valletta, Robert G., 2013. "Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market," IZA Discussion Papers 7347, Institute for the Study of Labor (IZA).

ExpertIdeasBot (talk) 18:41, 15 June 2016 (UTC)

Dr. Stockhammer's comment on this article

Dr. Stockhammer has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

"In economics, hysteresis refers to the possibility that periods of high unemployment tend to increase the rate-of-unemployment-below-which-inflation-begins-to-accelerate, commonly referred to as the natural rate of unemployment or non-accelerating inflation rate of unemployment (NAIRU)."

• This restricts the use of the hysteresis to unemployment hysteresis. Hysteresis (and path dependence are more generally used in economics to describe properties of economic systems. See e.g. Setterfield , Mark, Path Dependency, Hysteresis and Macrodynamics (November 7, 2008). Available at SSRN: http://ssrn.com/abstract=1297529 or http://dx.doi.org/10.2139/ssrn.1297529
• The use of NAIRU and the natural rate of unemployment is confusing. Natural rate model do not usually have hysteresis. In NAIRU model the NAIRU can be endogenous (i.e. there is hysteresis) or exogenous (i.e. equivalent to a natural rate).

Snowden, B, Vane, H, Wynarczyk, P, 1994. A Modern Guide to Macroeconomics: An Introduction to Competing Schools of Thought. Northampton, MA: Edward Elgar, Chapter on New Keynesian Economics Stockhammer, Engelbert, 2008. Is the NAIRU a Monetarist, New Keynesian, Post Keynesian or Marxist theory? Metroeconomica 59 (4), 479-510

"...for arbitrarily large would always equal a permanently fixed natural rate of unemployment." change to 'exogenously given NAIRU' see references above

"When some negative shock reduces employment in a company or industry, there are fewer employed workers left. As the employed workers usually have the power to influence or set wages, their reduced number incentivizes them to bargain for even higher wages when the economy again gets better, instead of letting the wage stay at the equilibrium wage level, where the supply and demand of workers would match. This causes hysteresis, i.e., the unemployment becomes permanently higher after negative shocks.[1]" -- Paragraph is narrow and thus potentially misleading. It gives one specific mechanism that can give rise to hysteresis (following the Blanchard and Summers paper). However, there are other mechanisms as well. The following sentence gives another one (loss of skills). However there are more possible mechanism. In particular there are can be wage norms: if the actual wage, the wage of co-workers or past wages serve as wage norms, unions' wage target may shift, which can give rise to hysteresis. Skott, Peter, 2005. Fairness as a source of hysteresis in employment and relative wages. Journal of Economic Behavior and Organization 57, 305-31 Stockhammer, E (2011). Wage norms, capital accumulation and unemployment. A Post Keynesian view. Oxford Review of Economic Policy 27, 2: 295–311

section Evidence is not up do date. There are several recent papers that find evidence consistent with unemployment hysteresis. Logeay, Camille and Silke Tober (2006). “Hysteresis and the Nairu in the Euro Area”, Scottish Journal of Political Economy, Vol. 53, No. 4, pp. 409-429 Stanley, Tom (2004). “Does Unemployment Hysteresis Falsify the Natural Rate Hypothesis? A Meta-Regression Analysis”, Journal of Economic Surveys, No. 18/4, pp. 589-612

Ball, Laurence, 1999. Aggregate demand and long-run unemployment. Brooking Papers on Economic Activity 2, 1999: 189-236

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Dr. Stockhammer has published scholarly research which seems to be relevant to this Wikipedia article:

• Reference : Engelbert Stockhammer & Alexander Guschanski & Karsten KAhler, 2014. "Unemployment, capital accumulation and labour market institutions in the Great Recession," Working Papers PKWP1406, Post Keynesian Economics Study Group (PKSG).

ExpertIdeasBot (talk) 18:11, 27 June 2016 (UTC)

Dr. Bande's comment on this article

Dr. Bande has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

Very poor article on the causes, implications and evidence of hysteresis in unemployment. Whereas it is true that hysteresis can be identified with a unit root in the unemployment rate series, existing evidence has found that prolonged adjustment to labour market shocks may make the unemployment rate look as non-stationary while being stationary (see Henry, Karanassou and Snower (2000):"Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.

Also,the paper by Karanassou, Sala and Snower (2007): "The macroeconomics of the labor market: three fundamental views," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 151-180, December.", may help in clarifying the differences between natural rate models, hysteresis models and prolonged adjustment models. This paper also provides interesting insights on the policy implications of each of these theories.

Finally, the evidence on hysteresis (proxied by a unit root in the unemployment rate" is overwhelming, a simple search on google academics will provide many references of published papers that support the hysteresis view.

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We believe Dr. Bande has expertise on the topic of this article, since he has published relevant scholarly research:

• Reference : Bande, Roberto & Riveiro, Dolores, 2012. "The Consumption-Investment-Unemployment Relationship in Spain: an Analysis with Regional Data," MPRA Paper 42681, University Library of Munich, Germany.

ExpertIdeasBot (talk) 17:27, 25 September 2016 (UTC)

Lack of non-employment material

The article begins by stating that hysteresis is a general term and singles out international trade as well as employment as a typical area affected. But the rest of the article is exclusively about employment. More material is needed on other examples, especially international trade. Deipnosophista (talk) 09:57, 14 December 2020 (UTC)