Habits, hysteresis and catastrophes in labor supply

This paper investigates the implications of a general model of locally unstable habit formation with respect to consumption, household time and corporate time. The model is shown to imply multiple long-run equilibria exhibiting hysteresis and catastrophes dependent on rationings and the wage rate. This can explain profound changes in labor supply preferences and behavior such as when long-term unemployed become little motivated to get a new job or when former housewives develop a strong orientation towards paid work.