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Is There a Growth-Unemployment Trade-Off?

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  • Patrick Toche
  • Lyon

Abstract

Why might there be a long-run trade-off between growth and unemployment? In general equilibrium, the returns on the factors of production are interdependent. This paper develops a model where the determination of the wage is central to the evolution of these incentives. The incentive to hire responds little (and in some cases not at all) to changes in the rate of interest. If the wage grows in line with productivity, there is a positive relation between growth and unemployment. If the wage rises as the labour market tightens, the incentive to invest in human and physical capital rises relative to the incentive to hire. There emerges a trade-off between growth and unemployment.

Suggested Citation

  • Patrick Toche & Lyon, 2001. "Is There a Growth-Unemployment Trade-Off?," Economics Series Working Papers 62, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:62
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    Cited by:

    1. Bernadette Mukhwana Wanjala & Maureen Were, 2009. "Gender Disparities and Economic Growth in Kenya: A Social Accounting Matrix Approach," Feminist Economics, Taylor & Francis Journals, vol. 15(3), pages 227-251.

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    More about this item

    Keywords

    endogenous growth; unemployment; human capital;
    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
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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