Blanchard's theory on unemployment and hysteresis
My work on hysteresis in European unemployment suggests that prolonged periods of high unemployment can have lasting effects. It's not just a temporary deviation from a natural rate; rather, the natural rate itself can rise. This happens because extended joblessness can erode workers' skills, discourage their participation in the labor force, and reduce their bargaining power, making it harder for them to find work even when the economy improves.
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