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Unemployment and the Productivity Slowdown: A Labour Supply Perspective

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Author Info
Campbell leith
Chol-Won Li

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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.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2001_13.

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Date of creation: Aug 2001
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Handle: RePEc:gla:glaewp:2001_13

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Related research
Keywords: technical progress; endogenous growth; unemployment; efficiency wages;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Galor, Oded & Lach, Saul, 1990. "Search Unemployment in an Overlapping-Generations Setting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 409-19, May. [Downloadable!] (restricted)
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  4. Saint-Paul, Gilles, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 527-50, May. [Downloadable!] (restricted)
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  5. Eriksson, Clas, 1997. "Is There a Trade-Off between Employment and Growth?," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 77-88, January. [Downloadable!] (restricted)
  6. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
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  7. Cecilia Garcia-Penalosa & Campbell leith & Chol-Won Li, 2001. "Wage Inequality and the Effort Incentive Effects of Technical Progress," Working Papers 2001_14, Department of Economics, University of Glasgow. [Downloadable!]
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
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  11. Manning, Alan, 1992. "Multiple equilibria in the British labour market : Some empirical evidence," European Economic Review, Elsevier, vol. 36(7), pages 1333-1365, October. [Downloadable!] (restricted)
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  12. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March. [Downloadable!] (restricted)
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  13. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October. [Downloadable!] (restricted)
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  15. Miles S. Kimball, 1989. "Labor Market Dynamics When Unemployment Is A Worker Discipline Device," NBER Working Papers 2967, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Hoon, Hian Teck & Phelps, Edmund S., 1997. "Growth, wealth and the natural rate: Is Europe's jobs crisis a growth crisis?," European Economic Review, Elsevier, vol. 41(3-5), pages 549-557, April. [Downloadable!] (restricted)
  17. repec:cup:cbooks:9780521479479 is not listed on IDEAS
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  19. Muscatelli, V Anton & Tirelli, Patrizio, 2001. "Unemployment and Growth: Some Empirical Evidence from Structural Time Series Models," Applied Economics, Taylor and Francis Journals, vol. 33(8), pages 1083-88, June. [Downloadable!] (restricted)
  20. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October. [Downloadable!] (restricted)
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  22. Van Ewijk, Casper, 1997. "Entry and Exit, Cycles, and Productivity Growth," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 167-87, April. [Downloadable!] (restricted)
  23. Alan Manning, 1992. "Productivity Growth, Wage Setting and the Equilibrium Rate of Unemployment," CEP Discussion Papers dp0063, Centre for Economic Performance, LSE.
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  25. Michael Woodford, 1994. "Structural Slumps," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1784-1815, December. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jim Malley & Hassan Molana, 2002. "Efficiency Wages, Unemployment and Macroeconomic Policy," Working Papers 2002_3, Department of Economics, University of Glasgow. [Downloadable!]
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