Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility

50 Pages Posted: 1 Feb 2011

See all articles by Pierpaolo Benigno

Pierpaolo Benigno

University of Bern - Department of Economics

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Luca Antonio Ricci

affiliation not provided to SSRN

Multiple version iconThere are 4 versions of this paper

Date Written: November 2010

Abstract

We propose a theory of low-frequency movements in unemployment based on asymmetric real wage rigidities. The theory generates two main predictions: long-run unemployment increases with (i) a fall in long-run productivity growth and (ii) a rise in the variance of productivity growth. Evidence based on U.S. time series and on an international panel strongly supports these predictions. The empirical specifications featuring the variance of productivity growth can account for two U.S. episodes which a linear model based only on long-run productivity growth cannot fully explain. These are the decline in long-run unemployment over the 1980s and its rise during the late 2000s.

Keywords: Business cycles, Economic models, Labor markets, Productivity, Time series, Unemployment, United States, Wage adjustments, Wages

Suggested Citation

Benigno, Pierpaolo and Surico, Paolo and Ricci, Luca Antonio, Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility (November 2010). IMF Working Paper No. 10/259, Available at SSRN: https://ssrn.com/abstract=1751371

Pierpaolo Benigno (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Paolo Surico

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Luca Antonio Ricci

affiliation not provided to SSRN

No Address Available

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