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Unemployment and Productivity Growth: An Empirical Analysis within the Augmented Solow Model

Michael Bräuninger () and Markus Pannenberg

No 136, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Does a country’s level of unemployment have an impact on the long-run growth rate? Incorporating unemployment into a generalised augmented Solow-type growth model, yields some answers to this question. In particular, we show that the impact of unemployment on productivity growth heavily depends on the influence of human capital in the production function. In the traditional Solow model, unemployment has neither an influence on long-run productivity growth nor on the long-run level of productivity. However, if human capital matters, unemployment has a long-run effect on the level of productivity. Moreover, if we allow for endogenous growth within our theoretical framework, unemployment has an impact on long-run productivity growth. Using data from 13 OECD countries from 1960 to 1990 within a dynamic panel data framework, we find supportive evidence that an increase in unemployment indeed reduces the long-run level of productivity. Taken at face value our results suggest that if unemployment would have remained at the level of 1960 then productivity today would be roughly 10% higher than it is.

Keywords: equilibrium unemployment; panel data.; Growth (search for similar items in EconPapers)
JEL-codes: O40 O57 E24 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2000-03
New Economics Papers: this item is included in nep-dev, nep-dge, nep-lab and nep-ltv
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Published in: Economic Modelling, 2002, 19 (1), 105-120; see IZA Reprints 112/02

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Journal Article: Unemployment and productivity growth: an empirical analysis within an augmented Solow model (2002) Downloads
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