TY - JOUR
T1 - Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions
AU - Chen, Been Lon
AU - Hsu, Mei
AU - Lai, Chih Fang
PY - 2016/12/1
Y1 - 2016/12/1
N2 - 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.
AB - 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.
KW - Economic growth
KW - Labor force
KW - Unemployment
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U2 - 10.1016/j.jmacro.2016.10.004
DO - 10.1016/j.jmacro.2016.10.004
M3 - Article
AN - SCOPUS:84995581651
VL - 50
SP - 273
EP - 292
JO - Journal of Macroeconomics
JF - Journal of Macroeconomics
SN - 0164-0704
ER -