Is There a Trade-Off between Employment and Growth?

Clas Eriksson

Oxford Economic Papers, 1997, vol. 49, issue 1, 77-88

Abstract: This paper investigates how unemployment and the long-run growth rate influence each other in steady state. It builds on Pissarides but Ramsey preferences are introduced, influencing the interest rate. A central finding is that there is a trade-off between successful growth and unemployment if one considers direct changes in the growth rate but, when the changes are indirect, what is good for growth is also good for employment. Thus to increase both growth and the employment rate, the policy implication seems to be that one should improve incentives (lower capital tax or unemployment benefits) rather than subsidize R&D incentives. Copyright 1997 by Royal Economic Society.

Date: 1997
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