Working Paper

Worker Identity, Employment Fluctuations and Stabilization Policy

IZA Publications, No. 7413

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.


Publication Date
JEL Classification
E24, E60, J21, J28