Hysteresis
From the Greek hystereō: “I lag behind, come later than.” Sir James Ewing coined the term in physics — iron retains magnetization even after the magnetic field is removed. The system remembers its history.
Applied to economics in the 1980s: some shocks don’t reverse when their causes end. The system settles into a new equilibrium, not the old one.
Unemployment hysteresis: during a recession, people lose jobs. Some never work again. Skills atrophy. Networks decay. The recession ends, but those workers don’t return to employment. The “natural rate” of unemployment ratchets upward.
Europe after the oil shocks of the 1970s demonstrated this. Unemployment rose during the crisis and stayed elevated for decades. The crisis was temporary. The unemployment wasn’t.
Mechanisms stack:
- Skills decay: Unused abilities erode. A programmer unemployed for three years isn’t as employable as one who kept working.
- Network erosion: Professional connections fade without maintenance. The job that came through a contact is no longer available when the contact forgets you exist.
- Automation: Recessions accelerate automation. When recovery comes, the eliminated jobs are gone permanently.
Hysteresis appears beyond labor markets:
Ecosystems: Overfish a population, and removing fishing pressure doesn’t restore it. The collapsed food web, the occupied ecological niches, the lost genetic diversity — these don’t snap back. The Amazon, once cleared, may not regenerate as rainforest.
Relationships: Damage trust through neglect or betrayal. Removing the bad behavior doesn’t restore trust to its previous level. The memory persists.
Institutions: Gut a public agency during budget cuts. Restoring the budget doesn’t restore the institutional knowledge that walked out the door.
The policy implication: prevention is cheaper than cure when hysteresis is present. A short recession prevented is worth more than a long recovery. A relationship maintained is worth more than a relationship repaired.
Some changes are one-way doors. The system can’t unknow what it learned. The path taken determines the destination, even after you stop walking.
Go Deeper
Books
- Increasing Returns and Path Dependence in the Economy by W. Brian Arthur — Technical treatment of path dependence and lock-in.
- QWERTY Economics — Essays on how early choices constrain later options (the keyboard layout that persists despite inefficiency).
Essays
- Olivier Blanchard and Lawrence Summers’ 1986 paper “Hysteresis and the European Unemployment Problem” — The influential economic formulation.
Related: [[systems]], [[ecological-succession]], [[lindy-effect]]