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Principles of Economics Macroeconomics Employment Hysteresis

Delve into the debate between optimists and pessimists on full employment. Learn how hysteresis affects the job market and potential output, with insights from J. Bradford DeLong and Paul Krugman. Understand why austerians' views are contentious and explore the impact on investment, innovation, and skill retention. Discover the nuances of the employment landscape and its implications on economic policy.

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Principles of Economics Macroeconomics Employment Hysteresis

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  1. Principles of Economics Macroeconomics Employment Hysteresis J. Bradford DeLong U.C. Berkeley

  2. How Far Are We from Potential Output/Full Employment? • Optimists think we are far from full employment because many people who would take jobs are not actively looking for them because jobs are scarce... • Pessimists think the official unemployment rate has it about right... • Austerians think we are at full employment now because of zero marginal product workers who lack skills... • I am an optimist... • I see no reason why anybody reality-based would be an austerian...

  3. Paul Krugman vs. The Austerians

  4. The Congressional Budget Office’s View

  5. Channels… • Deficient investment… • Less experimentation and innovation… • Workers lose their skills and their attachment… • All of these are extremely fuzzy… • As is the belief that half of the output gap has now shifted itself from being a demand shortfall to a reduction in potential output…

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