What is ‘Hysteresis’ in Economics?

June 02, 2017 12:13 am | Updated 12:13 am IST

Hysteresis occurs when unemployed persons are unwilling to accept lower wage rates as a means of returning to work. Wage stickiness implied by hysteresis can produce an increase in the “normal” unemployment rate, also known as the non-accelerating inflation rate of unemployment (NAIRU), which defies the notion of cyclical, or self-adjusting, unemployment. If, for example, jobs are outsourced to lower-wage economies, workers of the home economy may over time become unqualified to take on those jobs should they return or become dependent on government welfare benefits.

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