GROWTH, WEALTH AND THE NATURAL RATE - IS EUROPE JOBS CRISIS A GROWTH CRISIS

The effect of faster technical progress is studied in our labour-turno ver model of the natual rate of unemployment. In its closed economy ve rsion, the model implies that, in the limit, as the steady-growth rate is approached, the increase in the rate of progress is neutral for th e natural unemployment rate. Its effects are completely offset by the equal increase in the rate of interest it induces. However, of two sma ll open economies having the same technology level at some date, the o ne where technical progress has always been and always will be faster will have the lower wealth relative to its wage and a lower wage rate relative to future wage rates. Both effects operate to reduce the natu ral rate of unemployment. Whether this theory-based hypothesis will be confirmed empirically is a question needing extensive study. But a qu ick comparison of the G7 countries confirms that the proportionate inc rease of the unemployment rate in recent decades tended to be greater the more pronounced the productivity slowdown. (C) 1997 Elsevier Scien ce B.V.