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Structural Unemployment, Underemployment, and Secular Stagnation

Author

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  • Ken-ichi Hashimoto
  • Yoshiyasu Ono
  • Matthias Schlegl

Abstract

In this paper, we show that underemployment and not necessarily high unemployment becomes the main measure of economic slack in the labor market under secular stagnation. Specifically, involuntary underemployment in the form of a persistent shortfall of working hours occurs in the search and matching model, provided that households derive utility from holding wealth, and quickly dominates the total employment gap under stagnation. Conventional policy measures aimed at reducing unemployment may increase the labor market gap through their effects on underemployment and should be used with caution. In contrast, positive demand shocks improve unemployment and working hours, while increases in potential output worsen both (“paradox of toil”). Our analysis provides new insights into empirical puzzles such as Japan’s seemingly decent employment record during its lost decades.
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Suggested Citation

  • Ken-ichi Hashimoto & Yoshiyasu Ono & Matthias Schlegl, 2020. "Structural Unemployment, Underemployment, and Secular Stagnation," ISER Discussion Paper 1088rr, Institute of Social and Economic Research, The University of Osaka, revised Jul 2022.
    • Handle: RePEc:dpr:wpaper:1088rr
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    References listed on IDEAS

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    More about this item

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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