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Unemployment Invariance

  • Marika Karanassou
  • Dennis J. Snower

This paper provides a critique of the 'unemployment invariance hypothesis', according to which the behavior of the labor market, by itself, ensures that the long-run unemployment rate is independent of the size of the capital stock, productivity and the labor force. In the context of an endogenous growth model, 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. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2004.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 5 (2004)
Issue (Month): 3 (08)
Pages: 297-317

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Handle: RePEc:bla:germec:v:5:y:2004:i:3:p:297-317
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  1. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  2. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  3. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
  4. Arestis, Philip & Mariscal, Iris Biefang-Frisancho, 2000. "Capital Stock, Unemployment and Wages in the UK and Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(5), pages 487-503, November.
  5. Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics.
  6. Rowthorn, Robert, 1999. "Unemployment, Wage Bargaining and Capital-Labour Substitution," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 413-25, July.
  7. Pesaran, M.H., 1996. "The Role of Economic Theory in Modelling the Long Run," Cambridge Working Papers in Economics 9612, Faculty of Economics, University of Cambridge.
  8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
  9. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  10. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
  11. Snower, Dennis J. & Karanassou, Marika & Henry, Brian, 1999. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," IZA Discussion Papers 75, Institute for the Study of Labor (IZA).
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