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Unemployment Invariance

Author

Listed:
  • Karanassou, Marika

    (Queen Mary, University of London)

  • Snower, Dennis J.

    (Hertie School of Governance)

Abstract

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.

Suggested Citation

  • Karanassou, Marika & Snower, Dennis J., 2002. "Unemployment Invariance," IZA Discussion Papers 530, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp530
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    References listed on IDEAS

    as
    1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    2. Henry, Brian & Karanassou, Marika & Snower, Dennis J, 2000. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.
    3. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
    4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Decembrie.
    5. repec:hal:spmain:info:hdl:2441/5571 is not listed on IDEAS
    6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    7. Jean-Paul Fitoussi & David Jestaz & Edmund S. Phelps & Gylfi Zoega, 2000. "Roots of the Recent Recoveries: Labor Reforms or Private Sector Forces?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 237-311.
    8. Rowthorn, Robert, 1999. "Unemployment, Wage Bargaining and Capital-Labour Substitution," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 23(4), pages 413-425, July.
    9. Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics.
    10. 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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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    economic growth; technological change; unemployment; employment; wage determination; labor supply; capital accumulation; productivity;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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