Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions |
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| Institution: | 1. Institute of Economics, Academia Sinica, 128 Academia Road Section 2, Taipei 11529, Taiwan;2. College of Management, National Taiwan Normal University, 162 He-Ping E. Road Section 1, Taipei 106, Taiwan;3. Department of Economics, Soochow University, 56 Kuei-Yang Street Section 1, Taipei 100, Taiwan;1. Institute of Economics, Academia Sinica, 128 Academia Road, Section 2, Taipei, Taiwan;2. Graduate School of Economics, Kobe University, 2-1 Rokodai-cho, Nada-ku, Kobe 657-8501, Japan;3. Institute of Economic Research, Kyoto University, Yoshida Honmachi, Sakyo-ku, Kyoto, 606-850 Japan;1. The World Bank, United States;2. International Food Policy Research Institute, United States;3. U.S. Naval Academy, United States |
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| Abstract: | Based on labor search models with an exogenous labor force, existing papers have found a negative relation between long-run economic growth and unemployment. Motivated by the fact that the labor force participation has changed substantially across OECD countries, this paper revisits the long-run relation by taking account of endogenous labor-force participation. We find that, via the effects on employment, changes in labor market institutions may increase or decrease long-run economic growth. Moreover, depending upon the effects on the labor force and employment, these labor market institutions may increase or decrease unemployment rates in the long run. Thus, changes in labor market institutions lead to a non-monotone relation between long-run economic growth and unemployment that is consistent with the data. |
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