This paper provides a critique of the “unemployment invariance hypothesis,” according to which the behavior of the labor market ensures that the long-run unemployment rate is independent of the size of the capital stock, productivity, and the labor force. Using Solow growth and endogenous growth models, we show that the labor market need not contain all the equilibrating mechanisms to ensure unemployment invariance and that other markets may perform part of the equilibrating process as well. By implication, policies that stimulate investment and R&D and policies that affect the size of the labor force may influence the long-run unemployment rate. Layard-Nickell-Jackman “invariance condition” for labor market systems. This condition is meant to ensure that unemployment is not trended in response to growth in the capital stock, the labor force, or productivity.
|Date of creation:||Jul 2002|
|Publication status:||published in: German Economic Review, 2004, 5 (3), 297-317|
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- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
- Rowthorn, Robert, 1999. "Unemployment, Wage Bargaining and Capital-Labour Substitution," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 413-425, July.
- Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics.
- 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. Full references (including those not matched with items on IDEAS)
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