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Discussion Paper Details

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Title: The High Unemployment Trap

Author(s): Gilles Saint-Paul

Publication Date: July 1992

Keyword(s): Flexibility, Labour Market, Labour Mobility and Unemployment

Programme Area(s): International Macroeconomics

Abstract: A model of the labour market under firing restrictions and endogenous quits is constructed. It is shown that in the spirit of Blanchard and Summers (1988), the model can generate multiple equilibria, with a low-quits/high-unemployment equilibrium coexisting with a high-quits/low-unemployment equilibrium. Under weak conditions, low-unemployment equilibria Pareto dominate high-unemployment equilibria. Mobility premia improve aggregate welfare but may increase unemployment.

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Bibliographic Reference

Saint-Paul, G. 1992. 'The High Unemployment Trap'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=670