Unemployment and growth: some empirical evidence from structural time series models

This study investigates the empirical relationship between unemployment and growth in a number of OECD economies. A structural time series model is used for labour productivity growth to demonstrate that, in most economies, there seems to be a negative correlation between unemployment and labour productivity growth. The results provide little support for the theory that recessions may stimulate productivity growth. The use of a structural time series approach allows an attempt to model the underlying dynamics of productivity growth jointly with the effect of unemployment.     

PRODUCTIVITY GROWTH AND THE PHILLIPS CURVE: A REASSESSMENT OF THE US EXPERIENCE

In this paper, we analyse a new Phillips curve (NPC) model and demonstrate that (i) frictional growth, i.e., the interplay of wage staggering and money growth, generates a non‐vertical NPC in the long run and (ii) the Phillips curve (PC) shifts with productivity growth. On this basis we estimate a dynamic system of macro‐labour equations to evaluate the slope of the PC and explain the evolution of inflation and unemployment in the USA from 1970 to 2006. Because our empirical methodology relies heavily on impulse response functions, it represents a synthesis of the traditional structural modelling and (structural) vector autoregressions. We find that the PC is downward‐sloping with a slope of ?3.58 in the long run. Furthermore, during the stagflating 1970s, the productivity slowdown contributed substantially to the increases in both unemployment and inflation, whereas the monetary expansion was quite ineffective and led mainly to higher inflation. Finally, the monetary expansion and productivity speedup of the roaring 1990s were both responsible for the significant lowering of the unemployment rate.     

Demand,employment, and labour productivity in the European economies

This paper presents an explanation of the causes of the slowdown in growth in labour productivity in European economies in recent decades. In first instance, the weakness of domestic demand is what determines this slowdown in productivity. However, differences with the (mediocre) rates of growth of productivity between European countries are also related to the specific features of their respective labour markets because, in a context of weak domestic demand, there is a trade-off between employment and productivity.     

Business cycle, unemployment benefits and productivity shocks

The dimension of aggregate fluctuations is quite different between the European and US economies. Such a result fully justifies attention to non-Walrasian features for improving the empirical performance of the RBC model. In this paper, we introduce two features, present in European economies, into the standard general setting of the infinite-horizon stochastic growth paradigm: trade union behavior and unemployment benefits. We show that this non-Walrasian economy (i) improves the ability to account for the stylized facts, (ii) displays realistic features in explaining the employment and productivity puzzles, (iii) may account for contractions.     

产业结构变迁、劳动力市场扭曲 和中国劳动生产率增长放缓*

自2007年以来,中国的劳动生产率呈现出增长放缓的趋势。本文建立了包含劳动力市场扭曲和部门效率差异的三部门一般均衡模型,对劳动生产率增长放缓的原因进行了分析。本文的模型可以较好地拟合劳动力部门间再配置和劳动生产率增长放缓的特征事实。数值模拟结果表明,第三产业劳动生产率低速增长是导致中国总劳动生产率增长放缓的主要原因,而劳动力市场扭曲的减弱和第一产业劳动生产率的加速增长则对总劳动生产率增长放缓起到了遏制作用。这些结果证明,劳动生产率的增长放缓在很大程度上是产业结构变迁带来的。政府可以实施放松服务业进入规制和消除劳动力市场扭曲等政策,提高总劳动生产率的增长率。     

A demand and supply analysis of productivity growth

The paper rejects growth accounting as failing to reveal the economic forces that drive growth. Instead, it seeks to explain changing productivity growth in terms of economic phenomena such as the changing structure of output, the rate of adoption of new technology, and the strength of aggregrate demand. We introduce such a model and test it using pooled cross section and time series data for 16 OECD economies over a 30 year period. The parameter estimates allow us to decompose each economy's productivity growth into the part caused by its changing structure and the part explained by demand conditions. The estimates are used to account for the productivity slowdown that occurred in these economies after 1973, and to examine the recent productivity increase in the US. The model fully explains this growth surge in terms of the changed demand factors and structure of the US economy. We conclude by arguing that a prime benefit of strong aggregate demand is its stimulation of investment and technological change, leading to the adoption of new technology on a broad front.     

The Dynamics of Technological Unemployment*

This article compares the short‐ and long‐run effects of technological progress on employment. It presents a simple model of frictional unemployment capturing the negative creative destruction effects of technological change on employment. In the long run, faster technological change accelerates job obsolescence, which reduces the equilibrium level of employment. But it is also shown to have short‐run positive and potentially important effects on employment. This tends to partially reconcile the ‘‘Schumpeterian'’ view of the effects of technological change on labor markets with facts such as the response of most OECD unemployment rates to the 1970s productivity slowdown.     

Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?

Abstract. We present a non-scale continuous-time overlapping-generations growth model that provides an explanation for why economies with relative wage rigidity feature higher unemployment, but not slower productivity growth, than economies with flexible wages. The compression of the wage distribution associated with relative wage rigidity slows down human capital accumulation and growth ceteris paribus . But unemployment among the low-skilled workers strengthens the incentives to invest in human capital and, hence, growth. The two effects are offsetting, and growth is independent of the prevailing degree of relative wage rigidity. This knife-edge result is robust with respect to some modifications of the model.     

The effect of unemployment on labour productivity: an international comparative analysis

This is a comparative empirical analysis of the effect of unemployment - via a ‘work-intensity effect’ and/or a ‘workplace-innovation effect’ - on manufacturing productivity growth in eight advanced capitalist economies. My econometric results confirm earlier findings of positive work-intensity and workplace-innovation effects of unemployment on productivity growth in the United States; but I do not obtain similarly strong results for the other countries, and in Germany and Sweden I find evidence of negative unemployment effects. My findings are consistent with the comparative hypothesis that the sign and strength of unemployment effects on productivity growth will vary negatively with the degree to which a country's socioeconomic environment is characterized by cooperative capital-labour relations and worker security.     

Productivity paralysis and the complexity problem: Why do centrally planned economies become prematurely gray?

We develop a theory of the Soviet productivity growth slowdown that attributes it to difficulties encountered by systems of central planning as the economy becomes more complex. Shortages become more disruptive as the economy modernizes, forcing the economy to operate at an increasing distance from its production possibility frontier. The model also supports the widely held notion that consumer welfare suffers in Soviet-type economies as consumers' needs become increasingly sophisticated.     

The effects of U.S. shocks on Canadian total factor productivity growth: The case of the electrical products industry

This paper examines the influence on domestic total factor productivity of foreign income and price variations. The underlying model is a temporary equilibrium model of a pricediscriminating monopolist, who faces two markets with different demand elasticities, a fixed capital stock and economies of scale. A reduced form decomposition of total factor productivity growth is derived. The model is estimated on the data of the Canadian electrical products industry from 1962 to 1981. The results indicate that foreign variables played only a minor role in the growth of total factor productivity but were partly responsible for its post 1973 recorded slowdown. The U.S. industry price rise retarded considerably the Canadian total factor productivity growth in the electrical products industry.     

Global Imbalances: The Role of Emerging Asia

This paper investigates the role played by emerging Asia in the emergence and evolution of the global trade imbalances. Based on simulations in a general-equilibrium model of the world economy, we find that a productivity slowdown in the nontradable sector of these economies in the second half of the 1990s fits regional macroeconomic developments relatively well, but has limited spillover effect to the United States trade balance. In contrast, an increase in the desired level of emerging Asia net foreign assets starting in 2001 not only fits regional developments relatively well, but also has a significant spillover effect to the United States.     

Productivity versus elasticity: a normalized constant elasticity of substitution production function applied to historical Soviet data

This study tests the extensive growth hypothesis, which would attribute the Soviet economic slowdown to low elasticity of substitution and over-investment rather than deteriorating productivity growth. To circumvent the low availability of data, widely applicable new methods for estimating productivity and elasticity of substitution were developed based on the normalized constant elasticity of substitution (CES) production function. One is an extended version of the Solow residual calculation, and the other is a direct estimation of the time-varying parameter normalized CES production function. The application of the methods to the Soviet data showed a decreasing trend in productivity growth and a low elasticity of substitution of approximately 0.25. The results neither reject nor support the extensive growth hypothesis because of uncertainty in the interpretation of the low elasticity of substitution. The results suggest that it is reasonable to assert that both deteriorating productivity growth and low elasticity of substitution caused the Soviet economic slowdown. Further empirical studies on productivity and elasticity of substitution in the Soviet and other economies are necessary to fully understand relations between productivity growth, elasticity of substitution and economic development.     

Volatility in productivity and the impact on unemployment

Volatility, and the uncertainty it creates, has long been recognized as a factor in economic decision making. Since hiring occurs before shocks to productivity are realized, firms’ investment in new labour is inherently risky. How large a role uncertainty in productivity has on aggregate unemployment is an empirical question that we attempt to answer. In this paper we measure the impact of higher volatility in labour productivity on the unemployment rate in the U.S. economy using a SVAR-GARCH-M model. Using the conditional standard deviation of productivity innovations from a multivariate GARCH model to measure uncertainty, we provide compelling evidence that unemployment increases with volatility. This estimated relative effect is actually larger for positive productivity shocks leading to unemployment declines only 60% as large as would have occurred using models that exclude uncertainty.     

Unemployment dynamics with international capital mobility

We study the response of domestic unemployment rates to shocks in total factor productivity for economies with high capital mobility and low labour mobility. We show that high capital mobility amplifies the impact on the domestic unemployment rate of domestic fluctuations in total factor productivity, shortens the lag of the response to shocks and raises the variability of unemployment. But average unemployment is unaffected. Capital flows increase the riskiness of labour income and reduce the riskiness of capital income but do not reduce mean welfare.     

Italy’s decline and the balance-of-payments constraint: a multicountry analysis

According to the literature, the decline experienced by the Italian economy in the last two decades depends on a slowdown of its labour productivity, starting in the 1990s. The supply-side explanations of this slowdown are inconsistent with the major stylised facts. In this paper, we verify whether a better explanation is provided by the effect of a negative demand shock, through Italy’s external constraints, in the framework of Kaldor-Dixon-Thirlwall’s cumulative growth model. To this end, we use a multi-country generalisation of Thirlwall’s balance-of-payments-constrained growth model, which allows us to investigate the contribution of Italy’s main trade partners to Italy’s long-run growth from 1970 to 2010. The trade partners are disaggregated into seven groups: Eurozone core, Eurozone periphery, United States, other European countries, OPEC countries, BRIC, and the rest of the world. The results show that Italy’s long-run growth has been consistent with the Bop-constraint, that its decline can be explained by a progressive tightening of this constraint, that the sudden slowdown of labour productivity in the 1990s corresponds to a major shock on Italy’s external constraint, and that the major contributions to this shock came, through different channels of transmission, from the core Eurozone countries and from OPEC countries.     

Macroeconomic spillover effects of the Chinese economy

The slowdown of economy and widening of domestic imbalances in China bothers economists and politicians across the globe. We estimate the influence of a negative output shock in China on a number of different economies. We concentrate on China's neighboring countries. We compare the results from the Global VAR model and from the Bayesian VAR models. Also using Bayesian model averaging we search for determinants of Chinese spillovers for the global economy. We find that spillovers are stronger to economies with less flexible exchange rates, a higher share of manufacturing in gross value added and to economies which are larger.     

China's Growth Slowdown: Labor Supply,Productivity, or What?

There has been much discussion of the sources of China’s growth slowdown but little formal econometric analysis of this question. Chen and Groenewold (2019) show that the slowdown was primarily supply-driven, but they stopped short of identifying specific supply variables. This paper extends their analysis and distinguishes several potential supply components: labor supply, productivity, and capital accumulation. Our results confirm their main conclusion that supply dominates the explanation of the slowdown. A model with two supply factors (labor supply and productivity) reveals that both components contribute to the slowdown, although productivity makes the greater contribution. However, when capital stock is added to the model, the decline in the capital accumulation rate becomes an important factor in the growth slowdown, to some extent replacing the effects of both labor supply and productivity.     

Job creation and job destruction in the presence of informal markets

In developing economies, the fraction of informal workers can be as high as 70% of total employment. For economies with significant informal sectors, business cycle fluctuations and labor market policy interventions can have important effects not only on the unemployment rate, but also on the allocation of workers across regulated and unregulated jobs. In this paper, using worker flows data from Brazil, we build, calibrate, and simulate a two-sector search and matching labor market model, in which firms have the choice of hiring workers formally or informally. We show that our model can explain well the main cyclical patterns that lead to those cyclical reallocations. We also show how the effect of government interventions in the labor market depend on the magnitude of the reallocation of labor across regulated and unregulated sectors. For our calibration, policies that decrease the cost of formal jobs, or increase the cost of informality, raise the share of formal employment while reducing unemployment.     

The effect of a Chinese slowdown on inflation in the euro area and the United States

We investigate the effect of a Chinese slowdown on inflation in the euro area and the United States using the NiGEM multi-country model. We construct different scenarios including a fall in Chinese aggregate demand, a commodity price slump, financial market corrections and a devaluation of the renmimbi. While the commodity slump has the strongest impact on inflation, the demand and exchange rate shocks also play a role; on the contrary, financial turbulences have minor effects. Finally, we study the extent to which monetary policy in advanced economies can succeed in reflating the economy following such a Chinese slowdown. The room for central bank interventions is large.