American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
High Discounts and High Unemployment
American Economic Review
vol. 107,
no. 2, February 2017
(pp. 305–30)
Abstract
Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers' investment in job creation. The discount rate implicit in the stock market rises, and discounts for other claims on business income also rise. A higher discount implies a lower present value of the benefit of a new hire to an employer. According to the leading view of unemployment--the Diamond-Mortensen-Pissarides model--when the incentive for job creation falls, the labor market slackens and unemployment rises. Thus high discount rates imply high unemployment.Citation
Hall, Robert E. 2017. "High Discounts and High Unemployment." American Economic Review, 107 (2): 305–30. DOI: 10.1257/aer.20141297Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- J63 Labor Turnover; Vacancies; Layoffs