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Frictional unemployment, labor market institutions, and endogenous economic growth

  • Andreas Irmen


    (University of Heidelberg, CEPR, London, and CESifo, Munich)

For a given set of labor market institutions, the rate of frictional unemployment depends on the evolution of the pool of job-seekers. Unemployment rises with the growth rate of labor supply that is proportionate to the rate of population growth. If economic growth is semi-endogenous, the steady-state growth rate depends positively on the rate of population growth. This suggests a trade-off between growth and unemployment: a faster growing economy has a higher unemployment rate. As a consequence, faster growth may not be desirable from a welfare point of view. We make this point in a parsimonious setting where semi-endogenous growth derives from the division of labor and the associated gains from specialization.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 2 ()
Pages: 1127-1138

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Handle: RePEc:ebl:ecbull:eb-08o30011
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