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Unemployment and Productivity in the Long Run

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Author Info

  • Paolo Surico
  • Luca Antonio Ricci
  • Pierpaolo Benigno

Abstract

We propose a theory of low-frequency movements in unemployment based on asymmetric real wage rigidities. The theory generates two main predictions: long-run unemployment increases with (i) a fall in long-run productivity growth and (ii) a rise in the variance of productivity growth. Evidence based on U.S. time series and on an international panel strongly supports these predictions. The empirical specifications featuring the variance of productivity growth can account for two U.S. episodes which a linear model based only on long-run productivity growth cannot fully explain. These are the decline in long-run unemployment over the 1980s and its rise during the late 2000s.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/259.

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Length: 49
Date of creation: 01 Nov 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/259

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Related research

Keywords: Unemployment; Productivity; Economic models; Labor markets; Wage adjustments; unemployment rate; employment; unemployment rates; rate of unemployment; average unemployment; nairu; equilibrium unemployment; measuring unemployment; job creation; labor force participation; bargaining; unemployment increases; employment fluctuations; labor demand; civilian unemployment; employment demand; full employment;

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Cited by:
  1. Barbara Annicchiarico & Alessandra Pelloni, 2014. "Productivity growth and volatility: how important are wage and price rigidities?," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 306-324, January.
  2. KARGI, Bilal, 2014. "The Data of Labor Market in Turkey and Time Series Analysis on Economic Growth (2000:01-2013:03)," MPRA Paper 55186, University Library of Munich, Germany.
  3. Aurelijus Dabušinskas & Dmitry Kulikov & Martti Randveer, 2013. "The impact of volatility on economic growth," Bank of Estonia Working Papers, Bank of Estonia wp2012-7, Bank of Estonia, revised 04 Feb 2013.

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