The Pausing Theory of Unemployment

Abstract

This paper develops a theory of business cycle unemployment based on the idea that the economy may temporarily pause in response to heightened uncertainty. The pausing of actions in some quarters of the economy eases the problem of decision-making in other quarters, thereby leading the way to recovery. Both the heightening of uncertainty and the pausing-phenomena emerge from the interaction between firms with inter-related plans in a high-dimensional system. Unemployment therefore is a systemic- emergent phenomena and occurs without the imposition of sticky- wages or appropriability problems at the micro level.