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

Discussion Papers 230, 22 S.

Michael Bräuninger, Markus Pannenberg

2000. Nov.

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Does a country's level of unemployment have an impact on the long-run growth rate? Incorporating unemployment into a generalised Solow-type growth model, yields some answers. In the traditional Solow model, unemployment has no long-run influence on the growth rate and the level of productivity. The long-run level of productivity is reduced if higher unemployment leads to less formal education or to less learning-by-doing. If we allow for endogenous growth, unemployment reduces long-run productivity growth. Using panel data from 13 OECD countries from 1960 to 1990, we find evidence that an increase in unemployment scales down the long-run level of productivity.

JEL-Classification: O40;O57;E24
Keywords: Growth, Equilibrium Unemployment, Panel Data
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