Karl
Ove Moene, Ragnar Nymoen, and Michael Wallerstein
Abstract
The rate of unemployment differs dramatically among
similar countries for long periods of time. In this paper, we present
a model that can explain the persistence of both high and low levels
of unemployment as a consequence of firms' choice of employment
policy. One of the determinants of whether or not firms lay off
workers when demand is low is the anticipated difficulty of hiring
new workers should demand increase. When unemployment is low, workers
are harder to replace and firms are more reluctant to lay off in
response to low demand, which keeps unemployment low. When unemployment
is high, workers are easily replaced when needed and firms lay off
workers more frequently, which maintains high levels of unemployment.
We show, using Norwegian data, that the case of replacing workers
appears to have a significant impact on both the unemployment vacancy
curve and the level of employment.
Karl Ove Moene,
Department of Economics, University of Oslo Ragnar Nymoen, Central Bank
of Norway Michael Wallerstein, Department
of Political Science, Northwestern University
To Order:
Hard copies of IPR working papers cost $5.00 each (international orders are $10 each). We only accept checks drawn on U.S. bank and payable in U.S. funds. Checks or
money orders should be made payable to Northwestern University and sent to
the following address:
Publications Department - WP Orders
Institute for Policy Research
2040 Sheridan Rd., Evanston, IL 60208-4100.
For information, call 847-491-8712 or email ipr@northwestern.edu.
Please note that we do not accept credit cards.
