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Growth and Unemployment

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  • Philippe Aghion
  • Peter Howitt

Abstract

This paper analyses the effects of growth on long-run unemployment using a search model of equilibrium unemployment where growth arises explicitly from the introduction of new technologies that require labour reallocation for their implementation. The analysis uncovers and compares between two competing effects of growth on unemployment. The first is a capitalisation effect, whereby an increase in growth raises the capitalised returns from creating jobs and consequently reduces the equilibrium rate of unemployment. The second is a creative destruction effect whereby an increase in growth reduces the duration of a job match, thereby raising the equilibrium level of unemployment both directly, by raising the job separation rate, and indirectly, by discouraging the creation of job vacancies.

Suggested Citation

  • Philippe Aghion & Peter Howitt, 1994. "Growth and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 477-494.
    • Handle: RePEc:oup:restud:v:61:y:1994:i:3:p:477-494.
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    File URL: http://hdl.handle.net/10.2307/2297900
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    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D60 - Microeconomics - - Welfare Economics - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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