Unemployment Stigma and Multiple Labour Market Equilibria: A Social‐Psychological Interpretation of Hysteresis

Abstract

ABSTRACT: This paper supplements a simple one period non‐shirking efficiency wage model with behavioural assumptions drawn from the social‐psychological literature. A model of social interaction is developed in which the status associated with various labour market options yields implications for the shape of the non‐shirking constraint and, thereby, for the number and type of labour market equilibria. The significance of such a finding for the existence of unemployment hysteresis is explored.