Do recessions have longlasting adverse effects upon output? One common answer is that they do, to the extent that young people who are out of work lose experience and training and so are less productive even many years later. However, in a recent paper Dennis Snower and Wolfgang Lechthaler point to another mechanism through which such hysteresis can occur. Quite simply, unemployment causes otherwise diligent workers to lose their work ethic:
The deterioration of employment prospects during a deep, prolonged recession might induce some elite workers to lose their pro-work ethic. Since identities are sticky, they might keep their new identity even when the recession is long past. In this way, temporary shocks can have permanent effects and thus our model can explain the hysteresis in unemployment observed in many European countries.
This is consistent with evidence that deep recessions do indeed have long adverse effects upon output, and - of course - it strengthens still further the argument for policies aimed at ensuring near-full employment.
However, it bears upon another issue, one which often divides left and right - namely, the extent to which individuals' attitudes (such as work ethic and locus of control) are a cause of economic outcomes or a result of them. In other words, are the sort of people who appear on the Jeremy Kyle show the cause of mass unemployment or the effect?
Snower and Lechthaler's paper suggests the answer is at least partly "effect." In this sense, we can read it alongside Malmendier and Nagel's famous study (pdf) of the longlasting effects on risk appetite of recessions, and the evidence that people who are primed to conform (pdf) to adverse stereotypes really do live down to them.All provide corroboration of Marx's famous claim:
The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.