Learned helplessness, discouraged workers, and multiple unemployment equilibria

Unemployment varies strongly between countries with comparable economic structure. Some economists have tried to link this to institutional differences in the labour market. Instead, this paper focuses on a model with multiple equilibria so that the same socioeconomic structure can give rise to different levels of unemployment. Unemployed workers’ search efficiency is modelled within an equilibrium search model and lay behind these results. Learned helplessness causes a pro-cyclical behavior of the aggregate search efficiency, also known as the discouraged worker effect. The model also offers an explanation of why unemployment seems to move more easily up than down.