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Unemployment and Growth in the Long Run: An Efficiency-Wage Model with Optimal Savings

This paper develops an efficiency-wage model of steady-state equilibrium with labor-augmenting technical progress, and uses the model to explore the long-run relationship between unemployment and growth. The rate of productivity growth is either specified exogenously or determined endogenously (from learning by doing). In both cases, we preserve key results of the Shapiro-Stiglitz efficiency-wage analysis without growth. Our model, however, also yields some striking new results. For inStance, an exogenous increase in the growth rate may raise the rate of efficiency-wage unemployment, and a once-for-a1l rise in the labor force may reduce the unemployment rate in the endogenous-growth case.

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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 00-01.

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Date of creation: 2000
Date of revision: Sep 2002
Publication status: Published: Revised version in International Economic Review, Vol. 43, No. 3 (August 2002), pp. 875–894
Handle: RePEc:car:carecp:00-01
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