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Unemployment and productivity in the long run: The role of macroeconomic volatility

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  • Benigno Pierpaolo
  • Surico Paolo
  • Ricci Luca Antonio

Abstract

We propose a theory of low-frequency movements in unemployment based on asymmetric real wage rigidities. The theory generates two main predictions: long-run unemployment increases with (i) a fall in long-run productivity growth and (ii) a rise in the variance of productivity growth. Evidence based on U.S. time series and on an international panel strongly supports these predictions. The empirical specifications featuring the variance of productivity growth can account for two U.S. episodes which a linear model based only on long-run productivity growth cannot fully explain. These are the decline in long-run unemployment over the 1980s and its rise during the late 2000s.

Suggested Citation

  • Benigno Pierpaolo & Surico Paolo & Ricci Luca Antonio, 2011. "Unemployment and productivity in the long run: The role of macroeconomic volatility," wp.comunite 0085, Department of Communication, University of Teramo.
    • Handle: RePEc:ter:wpaper:0085
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    More about this item

    Keywords

    unemployment; productivity growth; volatility;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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