Working Paper: CEPR ID: DP9478
Authors: Wolfgang Lechthaler; Dennis J. Snower
Abstract: This paper provides a model of "social hysteresis," whereby long, deep recessions demotivate workers and thereby lead them to change their work ethic. In switching from a pro-work to an anti-work identity, their incentives to seek and retain work fall and consequently their employment chances fall. In this way, temporary recessions may come to have permanent effects on aggregate employment. We also show that these permanent effects, along with the underlying identity switches, can be avoided through stabilization policy. The size of the government expenditure multiplier can be shown to depend on the composition of identities in the workforce.
Keywords: business cycle; policy; economics of identity; hysteresis; work ethic
JEL Codes: E24; E60; J21; J28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Prolonged recessions (E32) | demotivation of workers (J29) |
| Prolonged recessions (E32) | work ethic change from prowork to antiwork identities (J29) |
| work ethic change from prowork to antiwork identities (J29) | reduced job-seeking behavior (J29) |
| Reduced job-seeking behavior (J65) | increased likelihood of remaining unemployed (J65) |
| Government stabilization policies (E63) | mitigate adverse effects of recessions on identity switches (E71) |
| Government stabilization policies (E63) | maintain prowork identity among workers (J54) |
| Maintain prowork identity among workers (J54) | preserve employment rates (J68) |
| Identity-switching process (J62) | permanent effects on labor market dynamics (J48) |
| Adopt antiwork identity (J29) | sustained increase in unemployment (J64) |