Working Paper
Worker Identity, Employment Fluctuations and Stabilization Policy
IZA Publications, No. 7413
Authors
Publication Date
JEL Classification
E24
E60
J21
J28
Key Words
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.
