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.