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Unemployment and the Productivity Slowdown: A Labour Supply Perspective

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  • Campbell leith
  • Chol-Won Li

Abstract

Many OECD economies suffered a productivity slowdown beginning in the early 1970s. However, the increase in unemployment that followed this slowdown was more pronounced in European economies relative to the US. In this paper we present an efficiency wage model, which enables us to identify five channels through which the productivity slowdown can affect workers’ effort incentives. We argue that this model can explain the different trends in unemployment across countries over this period in the face of a similar slowdown in productivity. We also demonstrate how the link between growth and unemployment depends upon labour market institutions in such a way that we can reconcile the mixed empirical results observed in the literature.

Suggested Citation

  • Campbell leith & Chol-Won Li, 2001. "Unemployment and the Productivity Slowdown: A Labour Supply Perspective," Working Papers 2001_13, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2001_13
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    References listed on IDEAS

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    Cited by:

    1. Jim Malley & Hassan Molana, 2002. "Efficiency Wages, Unemployment and Macroeconomic Policy," Working Papers 2002_3, Business School - Economics, University of Glasgow.

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    Keywords

    technical progress; endogenous growth; unemployment; efficiency wages;
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