Training and Hysteresis Effects on the Wage Inflation - Unemployment Relationship

23 Pages Posted: 5 Nov 2006

See all articles by W. David McCausland

W. David McCausland

University of Aberdeen - Business School

Ioannis Theodossiou

University of Aberdeen - Business School

Date Written: January 2004

Abstract

This paper develops a model that shows how training costs incurred by firms alters the relationship between wage inflation and unemployment. During an upswing, firms will take on and train new workers. These workers are, however, not shed during a following downswing. This is due to the lump sum training cost forcing a wedge between the level of demand that triggers a firm to begin training new workers and that which triggers them to shed trained workers. This has important policy implications as it gives a renewed role to demand side policy in enhancing labour market flexibility, whilst at the same time reinforcing the value of supply-side incentives to train and educate workers.

Keywords: Wage inflation, unemployment, human capital, training, hysteresis

JEL Classification: J31

Suggested Citation

McCausland, W. David and Theodossiou, Ioannis, Training and Hysteresis Effects on the Wage Inflation - Unemployment Relationship (January 2004). Available at SSRN: https://ssrn.com/abstract=942294 or http://dx.doi.org/10.2139/ssrn.942294

W. David McCausland (Contact Author)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Old Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom

Ioannis Theodossiou

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

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