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

Been Lon Chen, Mei Hsu, Chih Fang Lai

Research output: Contribution to journalArticle

3 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)273-292
Number of pages20
JournalJournal of Macroeconomics
Volume50
DOIs
Publication statusPublished - 2016 Dec 1

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Keywords

  • Economic growth
  • Labor force
  • Unemployment

ASJC Scopus subject areas

  • Economics and Econometrics

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