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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References listed on IDEAS
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- Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-191, January.
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- Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics. Full references (including those not matched with items on IDEAS)
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