This paper attempts to determine the factors generating the persistence of unemployment over the business cycle. The observations show that the total unemployment rate is highly persistent, and that the persistence of the unemployment rate of unskilled workers is higher than that of skilled workers. To account for these observations, the paper develops a framework that features search frictions. Individuals are either high educated or low educated, and firms post two types of vacancies: the complex, which can be matched with the high educated, and the simple, which can be matched with the high and the low educated. On-the-job search for a complex occupation is undertaken by the high educated in simple occupations. A negative aggregate technological shock induces the high educated unemployed to compete with the low educated by increasing their search intensity for simple vacancies. As the high educated occupy simple vacancies, they crowd out the low educated into unemployment. This downgrading of jobs in a cyclical downturn, or the increase in the labor input of the high educated in simple occupations, and the subsequent crowding out of the low educated into unemployment, provide a possible explanation for unemployment persistence.

We incorporate keeping-up-with-the-Joneses (KUJ) preferences into the Blanchard–Yaari framework and develop a model of balanced growth. In this context we investigate status preference, demographic shocks, and pension policy. We find that a higher degree of KUJ lowers economic growth, whereas, in contrast, a decrease in the fertility and mortality rates increase it. In the second part of the paper we extend the model by incorporating a pay-as-you-go (PAYG) pension system with a statutory retirement date. The latter implies that the growth rate is higher under PAYG. We also consider the implications of pension reform under both defined benefit and defined contribution schemes.

For two independent principles of intergenerational equity, the implied discount rate equals the growth rate of real per capita income, say, 2%, thus falling right into the range suggested by the U.S. Office of Management and Budget. To prove this, we develop a simple tool to evaluate small policy changes affecting several generations, by reducing the dynamic problem to a static one. A necessary condition is time invariance, which is satisfied by any common solution concept in an overlapping-generations model with exogenous growth. This tool is applied to derive the discount rate for cost–benefit analysis under two different utilitarian welfare functions: classical and relative. It is only with relative utilitarianism, and assuming time-invariance of the set of alternatives (policies), that the discount rate is well defined for a heterogeneous society at a balanced growth equilibrium, is corroborated by an independent principle equating values of human lives, and equals the growth rate of real per-capita income.

This paper explores the influence of inflation on economic growth both theoretically and empirically. We propose to merge an endogenous growth model of learning by doing with a New Keynesian one with sticky wages. We show that the intertemporal elasticity of substitution of working time is a key parameter for the shape of the inflation–growth nexus. When it is set equal to zero, the inflation–growth nexus is weak and hump-shaped. When it is greater than zero, inflation has a sizable and negative effect on growth. Endogenizing the length of wage contracts does not lead to inflation superneutrality in the presence of a fixed cost of wage resetting. Adopting various semiparametric and instrumental-variable estimation approaches on a cross-country/time-series data set, we show that increasing inflation reduces real economic growth, consistent with our theoretical model with a positive intertemporal elasticity of substitution of working time.

In this paper we use a dynamic general equilibrium growth model to quantify the contribution to productivity growth from different technological sources in the three leading economies of the world: Germany, Japan, and the United States. The sources of technology are classified into neutral progress and investment-specific progress. The latter can be split into two different types of equipment: information and communication technologies (ICT) and non-ICT equipment. We find that in the long run, neutral technological change is the main source of productivity growth in Germany and Japan. For the United States, the main source of productivity growth arises from investment-specific technological change, mainly associated with ICT. We also find that a non-negligible part of productivity growth in the three countries has been due to the technology specific to non-ICT equipment.

We clarify the different effects of elementary and higher education on human capital accumulation and inequality. The productivity of elementary education plays a significant role in the widening of inequality regardless of the existence of multiple steady states. When the productivity of elementary education is low, the poor cannot afford higher education in the long run because the demand for education by the rich makes the price of education too high for the poor. However, the effect of its productivity on the attainable education level is ambiguous. A rise in the productivity of higher education always increases the education level.