Definition of Hysteresis: Hysteresis is a hypothesized property of unemployment rates: that there is a ratcheting effect, so a short-term rise in unemployment rates tends to persist.

Theories that would lead to hysteresis:

• An insider/outsider model of decisionmaking about employment; insiders such as the unionized workers ratchet up wage rates beyond where it is profitable to hire the unemployed; outsiders who are unemployed don't get to be part of the negotiation process.
• Behavioral and human capital changes among the unemployed, such as forgetting the details of work or work behavior, or losing interest or skill in getting new jobs, could lead to declining chances of becoming employed.