This paper provides a critique of the ``unemployment invariance hypothesis,'' according to which the behavior of the labor market ensures that the long-run unemployment rate is independent of the size of the capital stock, productivity, and the labor force. Using Solow growth and endogenous growth models, we show that the labor market alone need not contain all the equilibrating mechanisms to ensure unemployment invariance; in particular, other markets may perform part of the equilibrating process as well. By implication, policies that raise the growth path of capital or increase the effective working-age population may influence the long-run unemployment rate.
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Paper provided by Queen Mary, University of London, Department of Economics in its series Working Papers with number
476.
Find related papers by JEL classification: J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
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