Learned helplessness, discouraged workers, and multiple unemployment equilibria in a search model

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Discussion Papers No. 303, August 2001 Statistics Norway, Research Department

Roger Bjørnstad

Learned Helplessness, Discouraged Workers, and Multiple Unemployment Equilibria in a Search Model

Abstract:

Unemployment varies strongly between countries with comparable economic structure.

Some economists have tried to explain these differences with institutional differences in the labour market. Instead, this paper focuses on a model with multiple equilibria so that the same socioeconomic structure can give rise to different levels of unemployment.

Unemployed workers' search efficiency are modelled within an equilibrium search model and lay behind these results. In the model learned helplessness causes a pro-cyclical behavior of the aggregate search efficiency, also known as the discouraged worker effect. The model can distinguish between locally stable and unstable labour market equilibria. The analysis shows that if a shock in an antecedent variable brings unemployment above the unstable equilibrium, the economy will eventually stabilize in a state with an even higher level of unemployment. However, a shock that brings the variable back at its initial level will not be enough to bring unemployment back at the lower equilibrium. Hence, the model also offers an explanation of why unemployment seems to move more easily up than down.

Keywords: Learned helplessness, discouraged workers, multiple unemployment equilibria, search effectiveness, long term unemployment

JEL classification: J64, E24

Address: Roger Bjørnstad, Statistics Norway, Research Department, P.O.B. 8131 Dep, N- 0033 Oslo, Norway. E-mail: roger.bjornstad @ssb.no

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Discussion Papers comprise research papers intended for international journals or books. As a pre- print a Discussion Paper can be longer and more elaborate than a standard jour- nal article by including intermediate calculation and background material etc.

Abstracts with downloadable PDF files of

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ghyldwlrq ri fD1 q lv vhw htxdo wr ffe1 Wkh phdq ydoxh ri g lv dvvxphg wr eh htxdo wr > ' f1 Dq hodvwlflw| ri prwlydwlrq frvwv zlwk uhvshfw wr wkh 0udwlr ri 0' lpsolhv wkdw prwlydwlrq frvwv uhodwlyh wr wkh zdjh ohyho iru wkh lqglylgxdo zlwk d phdq ydoxh rig zkr kdv ehhq xqhpsor|hg iruH prqwkv duh fdqg2lq orzhu dqg xsshu htxloleulxp uhvshfwlyho|1

53

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21

Recent publications in the series Discussion Papers

213 M. Søberg (1998): “EPA’s New Emissions Trading Mechanism: A Laboratory Evaluation” – A Comment 214 K. Nyborg (1998): Non-Verifiable Emissions, Voluntary

Agreements, and Emission Taxes

215 H. C. Bjørnland (1998): Economic Fluctuations in a Small Open Economy - Real versus Nominal Stocks 216 L.C. Zhang (1998): Post-Stratification and Calibration –

A Synthesis

217 R. Aaberge and Y. Zhu: The Pattern of Household Savings during a Hyperinflation. The Case of Urban China in the Late 1980s

218 L.C. Zhang (1998): A Note on Post-stratification when Analyzing Binary Survey Data Subject to Non-response 219 T.J. Klette and J. Møen (1998): From Growth Theory to Technology Policy – Coordination Problems in Theory and Practice

220 L.C. Zhang (1998): Synthetic Graphical Modelling of Binary Panel Data Subject to Non-response. A Case Study

221 J.K. Dagsvik (1998): Choice among Lotteries when Preferences are Stochastic

222 J.K. Dagsvik (1998): Nonparametric Identification of Discrete Choice Models

223 L. Brubakk and J.K. Dagsvik (1998): Consumer Demand and Unobservable Product Attributes 224 E. Holmøy (1998): Potential Aggregate Gains from

Improved Sectoral Efficiency: General Equilibrium Estimates for Norway

225 B.H. Vatne and J.K. Dagsvik (1998): Estimation of Generalized Extreme Value Models by a Max-spectral Representation

226 I. Svendsen (1998): Rational Expectations in Price Setting – Tests Based on Norwegian Export Prices 227 K.A. Brekke and R.B. Howarth (1998): The Social

Contingency of Wants: Implications for Growth and the Environment

228 K.A. Brekke and E. Moxnes (1998): Do Models Improve Fishery Management? Empirical Evidence from a Experimental Study

229 J.K. Dagsvik, Yu Zhu and R. Aaberge (1998): A Framework for Empirical Modelling of Consumer Demand with Latent Quality Attributes

230 R. Aaberge, U. Colombino and S. Strøm (1998): Social Evaluation of Individual Welfare Effects from Income Taxation: Empirical Evidence Based on Italian Data for Married Couples

231 R. Nesbakken (1998): Residential Energy Consumption for Space Heating in Norwegian Households. A Discrete-Continuous Choice Approach

232 R. Nesbakken (1998): Price Sensitivity of Residential Energy Consumption in Norway

233 M. Søberg (1998): Uncertainty and International Negotiations on Tradable Quota Treaties 234 J.K. Dagsvik and L. Brubakk: Price Indexes for

Elementary Aggregates Derived from Behavioral Assumptions

235 E. Biørn, K.-G. Lindquist and T. Skjerpen (1998):

Random Coefficients and Unbalanced Panels: An Application on Data from Norwegian Chemical Plants

236 K. Ibenholt (1998): Material Accounting in a

Macroeconomic Framework. Forecast of waste generated in manufacturing industries in Norway

237 K-G. Lindquist (1998): The Response by the Norwegian Aluminium Industry to Changing Market Structure 238 J.K. Dagsvik, A.S. Flaatten and H. Brunborg: A

Behavioral Two-Sex Model

239 K.A. Brekke, R.B. Howarth and K. Nyborg (1998): Are there Social Limits to Growth?

240 R. B. Howarth and K. A. Brekke (1998): Status Preferences and Economic Growth

241 H. Medin, K. Nyborg and I. Bateman (1998): The Assumption of Equal Marginal Utility of Income: How Much Does it Matter?

242 B. Bye (1998): Labour Market Rigidities and Environmental Tax Reforms: Welfare Effects of Different Regimes

243 B.E. Naug (1999): Modelling the Demand for Imports and Domestic Output

244 J. Sexton and A. R. Swensen (1999): ECM-algorithms that converge at the rate of EM

245 E. Berg, S. Kverndokk and K.E. Rosendahl (1999):

Optimal Oil Exploration under Climate Treaties 246 J.K. Dagsvik and B.H. Vatne (1999): Is the Distribution

of Income Compatible with a Stable Distribution?

247 R. Johansen and J.K. Dagsvik (1999): The Dynamics of a Behavioral Two-Sex Demographic Model

248 M. Søberg (1999): Asymmetric information and international tradable quota treaties. An experimental evaluation

249 S. Grepperud, H. Wiig and F.A. Aune (1999): Maize Trade Liberalization vs. Fertilizer Subsidies in Tanzania:

A CGE Model Analysis with Endogenous Soil Fertility 250 K.A. Brekke and Nils Chr. Stenseth (1999): A Bio-

Economic Approach to the study of Pastoralism, Famine and Cycles. Changes in ecological dynamics resulting from changes in socio-political factors

251 T. Fæhn and E. Holmøy (1999): Welfare Effects of Trade Liberalisation in Distorted Economies. A Dynamic General Equilibrium Assessment for Norway 252 R. Aaberge (1999): Sampling Errors and Cross-Country

Comparisons of Income Inequality

253 I. Svendsen (1999): Female labour participation rates in Norway – trends and cycles

254 A. Langørgen and R. Aaberge: A Structural Approach for Measuring Fiscal Disparities

255 B. Halvorsen and B.M. Larsen (1999): Changes in the Pattern of Household Electricity Demand over Time 256 P. Boug (1999): The Demand for Labour and the Lucas

Critique. Evidence from Norwegian Manufacturing 257 M. Rege (1999): Social Norms and Private Provision of

Public Goods: Endogenous Peer Groups

258 L. Lindholt (1999): Beyond Kyoto: CO2permit prices and the markets for fossil fuels

259 R. Bjørnstad and R. Nymoen (1999): Wage and Profitability: Norwegian Manufacturing 1967-1998

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22 260 T.O. Thoresen and K.O. Aarbu (1999): Income

Responses to Tax Changes – Evidence from the Norwegian Tax Reform

261 B. Bye and K. Nyborg (1999): The Welfare Effects of Carbon Policies: Grandfathered Quotas versus Differentiated Taxes

262 T. Kornstad and T.O. Thoresen (1999): Means-testing the Child Benefit

263 M. Rønsen and M. Sundström (1999): Public Policies and the Employment Dynamics among new Mothers – A Comparison of Finland, Norway and Sweden

264 J.K. Dagsvik (2000): Multinomial Choice and Selectivity

265 Y. Li (2000): Modeling the Choice of Working when the Set of Job Opportunities is Latent

266 E. Holmøy and T. Hægeland (2000): Aggregate Productivity and Heterogeneous Firms

267 S. Kverndokk, L. Lindholt and K.E. Rosendahl (2000):

Stabilisation of CO2concentrations: Mitigation scenarios using the Petro model

268 E. Biørn, K-G. Lindquist and T. Skjerpen (2000): Micro Data On Capital Inputs: Attempts to Reconcile Stock and Flow Information

269 I. Aslaksen and C. Koren (2000): Child Care in the Welfare State. A critique of the Rosen model 270 R. Bjørnstad (2000): The Effect of Skill Mismatch on

Wages in a small open Economy with Centralized Wage Setting: The Norwegian Case

271 R. Aaberge (2000): Ranking Intersecting Lorenz Curves 272 J.E. Roemer, R. Aaberge , U. Colombino, J, Fritzell, S.P.

Jenkins, I. Marx, M. Page, E. Pommer, J. Ruiz-Castillo, M. Jesus SanSegundo, T. Tranaes, G.G.Wagner and I.

Zubiri (2000): To what Extent do Fiscal Regimes Equalize Opportunities for Income Acquisition Among citizens?

273 I. Thomsen and L.-C. Zhang (2000): The Effect of Using Administrative Registers in Economic Short Term Statistics: The Norwegian Labour Force Survey as a Case Study

274 I. Thomsen, L.-C. Zhang and J. Sexton (2000): Markov Chain Generated Profile Likelihood Inference under Generalized Proportional to Size Non-ignorable Non- response

275 A. Bruvoll and H. Medin (2000): Factoring the environmental Kuznets curve. Evidence from Norway 276 I. Aslaksen, T. Wennemo and R. Aaberge (2000): "Birds

of a feather flock together". The Impact of Choice of Spouse on Family Labor Income Inequality

277 I. Aslaksen and K.A. Brekke (2000): Valuation of Social Capital and Environmental Externalities

278 H. Dale-Olsen and D. Rønningen (2000): The Importance of Definitions of Data and Observation Frequencies for Job and Worker Flows - Norwegian Experiences 1996-1997

279 K. Nyborg and M. Rege (2000): The Evolution of Considerate Smoking Behavior

280 M. Søberg (2000): Imperfect competition, sequential auctions, and emissions trading: An experimental evaluation

281 L. Lindholt (2000): On Natural Resource Rent and the Wealth of a Nation. A Study Based on National Accounts in Norway 1930-95

282 M. Rege (2000): Networking Strategy: Cooperate Today in Order to Meet a Cooperator Tomorrow

283 P. Boug, Å. Cappelen and A.R. Swensen (2000):

Expectations in Export Price Formation: Tests using Cointegrated VAR Models

284 E. Fjærli and R. Aaberge (2000): Tax Reforms, Dividend Policy and Trends in Income Inequality: Empirical Evidence based on Norwegian Data

285 L.-C. Zhang (2000): On dispersion preserving estimation of the mean of a binary variable from small areas 286 F.R. Aune, T. Bye and T.A. Johnsen (2000): Gas power

generation in Norway: Good or bad for the climate?

Revised version

287 A. Benedictow (2000): An Econometric Analysis of Exports of Metals: Product Differentiation and Limited Output Capacity

288 A. Langørgen (2000): Revealed Standards for Distributing Public Home-Care on Clients

289 T. Skjerpen and A.R. Swensen (2000): Testing for long- run homogeneity in the Linear Almost Ideal Demand System. An application on Norwegian quarterly data for non-durables

290 K.A. Brekke, S. Kverndokk and K. Nyborg (2000): An Economic Model of Moral Motivation

291 A. Raknerud and R. Golombek: Exit Dynamics with Rational Expectations

292 E. Biørn, K-G. Lindquist and T. Skjerpen (2000):

Heterogeneity in Returns to Scale: A Random Coefficient Analysis with Unbalanced Panel Data 293 K-G. Lindquist and T. Skjerpen (2000): Explaining the

change in skill structure of labour demand in Norwegian manufacturing

294 K. R. Wangen and E. Biørn (2001): Individual Hetero- geneity and Price Responses in Tobacco Consumption:

A Two-Commodity Analysis of Unbalanced Panel Data 295 A. Raknerud (2001): A State Space Approach for

Estimating VAR Models for Panel Data with Latent Dynamic Components

296 J.T. Lind (2001): Tout est au mieux dans ce meilleur des ménages possibles. The Pangloss critique of equivalence scales

297 J.F. Bjørnstad and D.E. Sommervoll (2001): Modeling Binary Panel Data with Nonresponse

298 Taran Fæhn and Erling Holmøy (2001): Trade Liberalisation and Effects on Pollutive Emissions and Waste. A General Equilibrium Assessment for Norway 299 J.K. Dagsvik (2001): Compensated Variation in Random

Utility Models

300 K. Nyborg and M. Rege (2001): Does Public Policy Crowd Out Private Contributions to Public Goods?

301 T. Hægeland (2001): Experience and Schooling:

Substitutes or Complements

302 T. Hægeland (2001): Changing Returns to Education Across Cohorts. Selection, School System or Skills Obsolescence?

303 R. Bjørnstad: (2001): Learned Helplessness, Discouraged Workers, and Multiple Unemployment Equilibria in a Search Model