Structural unemployment, underemployment, and secular stagnation

Ken-ichi Hashimoto, Yoshiyasu Ono and Matthias Schlegl

Journal of Economic Theory, 2023, vol. 209, issue C

Abstract: In this paper, we show that underemployment and not necessarily high unemployment becomes the main measure of economic slack in the labor market under secular stagnation. Specifically, involuntary underemployment in the form of a persistent shortfall of working hours occurs in the search and matching model, provided that households derive utility from holding wealth, and quickly dominates the total employment gap under stagnation. Conventional policy measures aimed at reducing unemployment may increase the labor market gap through their effects on underemployment and should be used with caution. In contrast, increases in aggregate demand improve unemployment and working hours, while increases in labor productivity worsen underemployment without improving unemployment (“paradox of toil”). Our analysis provides new insights into empirical puzzles such as Japan's seemingly decent employment record during its lost decades.

Keywords: Secular stagnation; Underemployment; Unemployment; Labor market frictions; Search and matching (search for similar items in EconPapers)
JEL-codes: E24 E31 E44 J20 J64 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Structural unemployment, underemployment, and secular stagnation (2023)
Working Paper: Structural Unemployment, Underemployment, and Secular Stagnation (2022)
Working Paper: Structural Unemployment, Underemployment, and Secular Stagnation (2022)
Working Paper: Structural Unemployment, Underemployment, and Secular Stagnation (2021)
Working Paper: Structural Unemployment, Underemployment, and Secular Stagnation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:209:y:2023:i:c:s0022053123000376

DOI: 10.1016/j.jet.2023.105641

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