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Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions

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  • Chen, Been-Lon
  • Hsu, Mei
  • Lai, Chih-Fang

Abstract

Based on labor search models with an exogenous labor force, existing papers have found a negative relation between long-run economic growth and unemployment. Motivated by the fact that the labor force participation has changed substantially across OECD countries, this paper revisits the long-run relation by taking account of endogenous labor-force participation. We find that, via the effects on employment, changes in labor market institutions may increase or decrease long-run economic growth. Moreover, depending upon the effects on the labor force and employment, these labor market institutions may increase or decrease unemployment rates in the long run. Thus, changes in labor market institutions lead to a non-monotone relation between long-run economic growth and unemployment that is consistent with the data.

Suggested Citation

  • Chen, Been-Lon & Hsu, Mei & Lai, Chih-Fang, 2016. "Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 273-292.
    • Handle: RePEc:eee:jmacro:v:50:y:2016:i:c:p:273-292
    DOI: 10.1016/j.jmacro.2016.10.004
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    More about this item

    Keywords

    Labor force; Unemployment; Economic growth;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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