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Determinants of Long‐Run Unemployment

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  • Haoming Liu
  • Jinli Zeng

Abstract

This paper investigates the determinants of long‐run unemployment and growth by extending the endogenous growth model of Howitt and Aghion (1998) to allow for a more general treatment of the labor market in the spirit of Pissarides (1990). We find that (i) both long‐run growth and unemployment depend not only on factors that affect long‐run growth as identified in endogenous growth models with full employment, but also on certain labor market parameters; (ii) long‐run unemployment may rise or fall with growth depending on the model's parameters; and (iii) though government policies that promote growth indirectly through improvement in labor market efficiency always reduce the long‐run unemployment rate, policies that directly encourage investment in research and development may increase the unemployment rate.

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  • Haoming Liu & Jinli Zeng, 2008. "Determinants of Long‐Run Unemployment," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 775-793, January.
    • Handle: RePEc:wly:soecon:v:74:y:2008:i:3:p:775-793
    DOI: 10.1002/j.2325-8012.2008.tb00863.x
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    References listed on IDEAS

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    Cited by:

    1. Jeremy Schwartz, 2013. "Unemployment Insurance and the Business Cycle: What Adjustments are Needed?," Southern Economic Journal, John Wiley & Sons, vol. 79(3), pages 680-702, January.

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