Unemployment Invariance

Marika Karanassou () and Dennis Snower

No 530, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper provides a critique of the “unemployment invariance hypothesis,” according to which the behavior of the labor market ensures that the long-run unemployment rate is independent of the size of the capital stock, productivity, and the labor force. Using Solow growth and endogenous growth models, we show that the labor market need not contain all the equilibrating mechanisms to ensure unemployment invariance and that other markets may perform part of the equilibrating process as well. By implication, policies that stimulate investment and R&D and policies that affect the size of the labor force may influence the long-run unemployment rate. Layard-Nickell-Jackman “invariance condition” for labor market systems. This condition is meant to ensure that unemployment is not trended in response to growth in the capital stock, the labor force, or productivity.

Keywords: economic growth; technological change; unemployment; employment; wage determination; labor supply; capital accumulation; productivity (search for similar items in EconPapers)
JEL-codes: J21 J23 J30 J38 J64 J68 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2002-07
New Economics Papers: this item is included in nep-lab, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - published in: German Economic Review, 2004, 5 (3), 297-317

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