Working Paper: CEPR ID: DP883
Authors: Dennis J. Snower
Abstract: This paper provides a brief, non-technical survey of the major theories about why people remain unemployed. The aim is to provide a macroeconomic perspective on the microeconomic problem of why people don't find work. The first section deals with market-clearing theories: the natural rate hypothesis, the intertemporal substitution hypothesis, and real business cycle theory. The second section deals with imperfect information as an impediment to finding work: search theory, implicit contract theory, and efficiency wage theory. The third section concerns labour market institutions as sources of unemployment: labour unions, supply shocks combined with real wage rigidity, and automation and trade combined with real wage rigidity. The fourth and fifth sections deal with deficient demand and labour turnover costs as sources of unemployment. The final section deals with unemployment dynamics.
Keywords: unemployment; work; wage formation; macroeconomic fluctuations; imperfect information; unions; aggregate demand; labour turnover
JEL Codes: E3; J2; J3; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expectations about wages and prices (E64) | unemployment fluctuations (J64) |
| expectations about wages and prices (E64) | deviations from natural rate of unemployment (J64) |
| labor market institutions (J08) | unemployment (J64) |
| workers' lack of knowledge about job availability (J68) | unemployment (J64) |
| expected wage increases (J31) | workers' decision to seek work (J29) |
| technological shocks (O33) | unemployment fluctuations (J64) |
| higher wages (J39) | involuntary unemployment (J64) |
| labor turnover costs (J63) | wage rigidity (J31) |
| wage rigidity (J31) | higher unemployment rates (J64) |