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

Pierpaolo Benigno, Luca Ricci and Paolo Surico

Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: We propose a theory of low-frequency movements in unemployment based on downward 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.

Keywords: Unemployment; Productivity growth; Volatility (search for similar items in EconPapers)
JEL-codes: E0 E20 E40 (search for similar items in EconPapers)
Pages: 44
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility (2015)
Working Paper: Unemployment and productivity in the long run: The role of macroeconomic volatility (2011)
Working Paper: Unemployment and Productivity in the Long Run: the Role of Macroeconomic Volatility (2010)
Working Paper: Unemployment and Productivity in the Long Run: the Role of Macroeconomic Volatility (2010)
Working Paper: Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:itt:wpaper:wp2011-5

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