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Unemployment and the Productivity Slowdown: A Labour Supply Perspective

  • Campbell leith
  • Chol-Won Li

Many OECD economies suffered a productivity slowdown beginning in the early 1970s. However, the increase in unemployment that followed this slowdown was more pronounced in European economies relative to the US. In this paper we present an efficiency wage model, which enables us to identify five channels through which the productivity slowdown can affect workers’ effort incentives. We argue that this model can explain the different trends in unemployment across countries over this period in the face of a similar slowdown in productivity. We also demonstrate how the link between growth and unemployment depends upon labour market institutions in such a way that we can reconcile the mixed empirical results observed in the literature.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2001_13.

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Date of creation: Aug 2001
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Handle: RePEc:gla:glaewp:2001_13
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  7. Daron Acemoglu, 2000. "Credit Market Imperfections and Persistent Unemployment," NBER Working Papers 7938, National Bureau of Economic Research, Inc.
  8. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  9. Gilles Saint-Paul, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 527-550.
  10. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
  11. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  12. Manning, Alan, 1991. "Multiple Equilibria in the British Labour Market: Some Empirical Evidence," CEPR Discussion Papers 540, C.E.P.R. Discussion Papers.
  13. Michael Woodford, 1994. "Structural Slumps," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1784-1815, December.
  14. V. Anton Muscatelli & Patrizio Tirelli, 2001. "Unemployment and growth: some empirical evidence from structural time series models," Applied Economics, Taylor & Francis Journals, vol. 33(8), pages 1083-1088.
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  17. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  19. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  20. Boeri, Tito, 1999. "Enforcement of employment security regulations, on-the-job search and unemployment duration," European Economic Review, Elsevier, vol. 43(1), pages 65-89, January.
  21. Cecilia Garcia-Penalosa & Campbell leith & Chol-Won Li, 2001. "Wage Inequality and the Effort Incentive Effects of Technical Progress," Working Papers 2001_14, Business School - Economics, University of Glasgow.
  22. Eriksson, Clas, 1997. "Is There a Trade-Off between Employment and Growth?," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 77-88, January.
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  25. Alan Manning, 1992. "Productivity Growth, Wage Setting and the Equilibrium Rate of Unemployment," CEP Discussion Papers dp0063, Centre for Economic Performance, LSE.
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