Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions

Been-Lon Chen, Mei Hsu and Chih-Fang Lai

Journal of Macroeconomics, 2016, vol. 50, issue C, 273-292

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.

Keywords: Labor force; Unemployment; Economic growth (search for similar items in EconPapers)
JEL-codes: E24 J64 O41 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:50:y:2016:i:c:p:273-292

DOI: 10.1016/j.jmacro.2016.10.004

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