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

33 Pages Posted: 3 Oct 2000

See all articles by Markus Pannenberg

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn

Michael Bräuninger

HWWI - Hamburg Institute of International Economics; Universitaet der Bundeswehr Hamburg - Department of Economics

Date Written: March 2000

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.

JEL Classification: O40, O57, E24

Suggested Citation

Pannenberg, Markus and Braeuninger, Michael, Unemployment and Productivity Growth: An Empirical Analysis within the Augmented Solow Model (March 2000). Available at SSRN: https://ssrn.com/abstract=224245

Markus Pannenberg (Contact Author)

University of Applied Sciences Bielefeld - Department of Business and Economics ( email )

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HOME PAGE: http://aix5.fh-bielefeld.de/~mpannenb/index.html

DIW Berlin - GSOEP ( email )

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Institute for the Study of Labor (IZA), Bonn

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Michael Braeuninger

HWWI - Hamburg Institute of International Economics ( email )

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Germany

Universitaet der Bundeswehr Hamburg - Department of Economics ( email )

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