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Unemployment Invariance

Author

Listed:
  • Karanassou, Marika

    () (Queen Mary, University of London)

  • Snower, Dennis J.

    () (Kiel Institute for the World Economy)

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. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    4. 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.
    5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    6. 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.
    7. 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.
    8. Rowthorn, Robert, 1999. "Unemployment, Wage Bargaining and Capital-Labour Substitution," Cambridge Journal of Economics, Oxford University Press, 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.
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    Citations

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    Cited by:

    1. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2006. "Unemployment, Growth, And Fiscal Policy: New Insights On The Hysteresis Hypothesis," Macroeconomic Dynamics, Cambridge University Press, vol. 10(3), pages 285-316, June.
    2. Aysit Tansel & Zeynel Abidin Ozdemir & Emre Aksoy, 2016. "Unemployment and labour force participation in Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 23(3), pages 184-187, February.
    3. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 334-354, December.
    4. repec:spd:journl:v:67:y:2017:i:4:p:45-84 is not listed on IDEAS
    5. Aysit Tansel & Zeynel Abidin Ozdemir & Emre Aksoy, 2016. "Unemployment and labour force participation in Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 23(3), pages 184-187, February.
    6. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "Capital accumulation and unemployment: new insights on the Nordic experience," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 977-1001, November.
    7. Roberto Bande & Marika Karanassou, 2009. "Labour market flexibility and regional unemployment rate dynamics: Spain 1980–1995," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 181-207, March.
    8. Karanassou, Marika & Sala, Hector & Snower, Dennis, 2003. "Unemployment in the European Union: a dynamic reappraisal," Economic Modelling, Elsevier, vol. 20(2), pages 237-273, March.
    9. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    10. Marika Karanassou & Hector Sala, 2010. "Labour Market Dynamics in Australia: What Drives Unemployment?," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 185-209, June.
    11. Österholm, Pär, 2010. "Unemployment and labour-force participation in Sweden," Economics Letters, Elsevier, vol. 106(3), pages 205-208, March.
    12. Roberto Bande & Marika Karanassou, 2011. "The NRU and the Evolution of Regional Disparities in Spanish Unemployment," Working Papers 681, Queen Mary University of London, School of Economics and Finance.
    13. Marika Karanassou & Hector Sala & Dennis Snower, 2007. "The macroeconomics of the labor market: three fundamental views," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 151-180, December.
    14. Roberto Bande & Marika Karanassou, 2014. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," Regional Studies, Taylor & Francis Journals, vol. 48(11), pages 1863-1883, November.
    15. Aysit Tansel & Zeynel Abidin Ozdemir, 2016. "Unemployment Invariance Hypothesis, Added and Discouraged Worker Effects in Canada?," ERC Working Papers 1717, ERC - Economic Research Center, Middle East Technical University, revised Dec 2017.
    16. Emerson, Jamie, 2011. "Unemployment and labor force participation in the United States," Economics Letters, Elsevier, vol. 111(3), pages 203-206, June.
    17. Aysit Tansel & Zeynel Abidin Ozdemir & Emre Aksoy, 2016. "Does Unemployment Invariance Hypothesis Hold for Canada?," Working Papers 2016/3, Turkish Economic Association.
    18. Marika Karanassou & Hector Sala, 2008. "The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective," Working Papers 633, Queen Mary University of London, School of Economics and Finance.
    19. Tansel, Aysit & Ozdemir, Zeynel Abidin & Aksoy, Emre, 2016. "Does Unemployment Invariance Hypothesis Hold for Canada?," MPRA Paper 72869, University Library of Munich, Germany.
    20. Makoto Kakinaka & Hiroaki Miyamoto, 2012. "Unemployment and labour force participation in Japan," Applied Economics Letters, Taylor & Francis Journals, vol. 19(11), pages 1039-1043, July.
    21. Liu, De-Chih, 2014. "The link between unemployment and labor force participation rates in Japan: A regional perspective," Japan and the World Economy, Elsevier, vol. 30(C), pages 52-58.
    22. repec:spr:epolit:v:35:y:2018:i:2:d:10.1007_s40888-018-0102-x is not listed on IDEAS
    23. Martin Leites & Sylvina Porras, 2013. "El enfoque de la Reacción en Cadena: una aplicación para explicar la dinámica del desempleo en Uruguay," Documentos de Trabajo (working papers) 13-11, Instituto de Economia - IECON.
    24. Driver, Ciaran & Muñoz-Bugarin, Jair, 2010. "Capital investment and unemployment in Europe: Neutrality or not?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 492-496, March.
    25. repec:eco:journ1:2018-06-2 is not listed on IDEAS

    More about this item

    Keywords

    economic growth; technological change; unemployment; employment; wage determination; labor supply; capital accumulation; productivity;

    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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