Short and Long-Run Effects of Productivity on Unemployment

30 Pages Posted: 30 Jan 2017

See all articles by Willi Semmler

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Pu Chen

Bielefeld University - Department of Business Administration and Economics

Date Written: January 28, 2017

Abstract

Okun’s (1962) seminal paper is an important study on economic growth and unemployment but a detailed exploration of the effect of productivity growth on unemployment has been left aside. Yet, the relationship between productivity growth and unemployment has been debated since long. In this paper we present stylized facts on the link between productivity growth and unemployment for the short and long run, and present model variants that demonstrate that in the short run productivity growth can have a negative effect on employment – or may even increase unemployment – while in the long run the relationship between productivity growth and employment are likely to co-vary positively. Using US data, empirically we decompose the time series of unemployment rate and productivity growth into long run and short run components and show empirical evidence that the long run and short run components co-vary as predicted by some theories.

Keywords: Okun's law, Productivity, Unemployment

JEL Classification: O11, O25, O33

Suggested Citation

Semmler, Willi and Chen, Pu, Short and Long-Run Effects of Productivity on Unemployment (January 28, 2017). Available at SSRN: https://ssrn.com/abstract=2907539 or http://dx.doi.org/10.2139/ssrn.2907539

Willi Semmler (Contact Author)

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

Pu Chen

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

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