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Is There A Growth-Unemployment Trade-Off?


  • Toche, P.


Why might there be a long-run trade-off between growth and unemployment? In general equilibrium, the returns on the factors of production are interdependent. This paper develops a model where the determination of the wage is central to the evolution of these incentives. The incentive to hire responds little (and in some cases not at all) to changes in the rate of interest. If the wage grows in line with productivity, there is a positive relation between growth and unemployment. If the wage rises as the labour market tightens, the incentive to invest in human and physical capital rises relative to the incentive to hire. There emerges a trade-off between growth and unemployment.

Suggested Citation

  • Toche, P., 2001. "Is There A Growth-Unemployment Trade-Off?," Economics Series Working Papers 9962, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:9962

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


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