Employment Hysteresis in an Overlapping-Generations Insider-Outsider Model

This paper shows, within an overlapping generations insider-outsider model, that, in the presence of training costs, there may be multiple employment equilibria. Adverse technology shocks may shift the system from ‘high’ to ‘low’ employment steady states. Restoration of the initial technological state does not always lead to the ‘high’ employment equilibrium being returned - the system may get ‘stuck’ in a ‘low’ employment state.