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Involuntary Unemployment in Diamond-Type Overlapping Generations Models

In: Macroeconomic Analysis for Economic Growth

Author

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  • Karl Farmer

Abstract

Thus far involuntary unemployment does not occur in Diamond-type Overlapping Generations models. In line with Keynesian macroeconomics, involuntary unemployment is traced back to aggregate demand failures. While macro-economists majority refers aggregate demand failures to sticky prices, a minority attributes lacking aggregate demand to not perfectly flexible aggregate investment. The chapter investigates how an independent aggregate investment function causes involuntary unemployment under perfectly flexible competitive wage and interest rates in a Diamond-type neoclassical growth model with public debt and human capital accumulation. Moreover, it is shown that a higher public debt to output ratio enhances output growth and reduces involuntary unemployment.

Suggested Citation

  • Karl Farmer, 2022. "Involuntary Unemployment in Diamond-Type Overlapping Generations Models," Chapters, in: Musa Jega Ibrahim (ed.), Macroeconomic Analysis for Economic Growth, IntechOpen.
    • Handle: RePEc:ito:pchaps:248889
    DOI: 10.5772/intechopen.101081
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    More about this item

    Keywords

    involuntary unemployment; overlapping generations models; inflexible aggregate investment; public debt; human capital accumulation;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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