Growth and Unemployment

This analysis uncovers and compares two competing effects of growth on unemployment. The first is a capitalization effect, whereby an increase in growth raises the capitalized returns from creating jobs and consequently reduces the equilibrium rate of unemployment. The second is a creative destruction effect, whereby an increase in growth reduces the duration of a job match, thereby raising the equilibrium level of unemployment both directly, by raising the job separation rate, and indirectly, by discouraging the creation of job vacancies. Copyright 1994 by The Review of Economic Studies Limited.

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