Mass Partial Unemployment

Mass partial unemployment is a phenomenon that was first observed during the 1997–98 Asian financial crisis. Workers in countries such as Indonesia, South Korea, Thailand, Malaysia, and the Philippines found that employers were reluctant to hire even after available job openings due to anemic sales growth and uncertainty related to exchange rate movements. Firms’ employment decisions were influenced by their estimates of how profitable it would be to hire new workers and their beliefs about how other firms were making similar decisions. Research showed that firms’ expectations fed on themselves. Suppose all firms expect the employment level to remain unchanged from one period to another. In that case, this expectation can cause firms not to hire even when they might have been profitable given a different expectation.