Introduction and Overview

This book is not about economic growth. Nor is it about unemployment. Rather, this book investigates the interaction between changes in the level of unemployment and changes in the rate of economic growth. It asks, in both theoretical and empirical terms, whether a change in the growth rate of the economy will affect the level of unemployment which the economy experiences, and whether a decline in the level of unemployment will promote or retard the growth performance of the economy.1 Unemployment is, first and foremost, a social issue. But it also deprives the economy of part of its resource base. If and when it does, it will also reduce potentially productivity-enhancing activities, thus reducing the engine of economic growth. The presence of unemployment will alter the motivation and incentives of economic agents in many ways. It may induce agents to work harder in order not to lose their jobs, but it is equally likely to lead to a shift away from innovative towards routine tasks, thus either increasing or reducing the level of economic growth. Furthermore, it may lead agents to revise their wage claims, thus potentially influencing the sectoral composition of the economy, which may or may not foster economic growth.