1 Introduction
Data on long-term unemployment1 show a huge increase in the level and the growth
rates of long-term unemployment in industrialized countries and simultaneously
these countries display positive GNP-growth rates per capita. A natural question
then becomes, How does technical progress affect long-term unemployment?
Stylized Facts
Figure la shows a group of countries characterized by high shares of long-term
unemployment. In 1975 Belgium displays 36 per cent long-term unemployment of
total unemployment; this share increases until 1999 up to over 60 per cent. Italy
and Ireland have nearly 67 respectively 57 per cent long-term unemployment in the
end of the 90s. In this group the average growth rate of long-term unemployment
is at about 2 per cent.
The countries shown in Figure lb are characterized by medium levels and higher
average growth rates of long-term unemployment. The share of long-term unem-
ployment increases in Germany from 10 per cent in 1975 up to 50 per cent in 1999.
France and the U.K. show nearly the same structure: their proportions rise from 17
per cent in 1975 up to 40 per cent at the end of the last decade.
A third country group with relatively low levels but relatively high growth rates of
long-term unemployment can be identified in Figure 1c. Canada starts with 1 per
cent long-term unemployment and this increases up to nearly 11 per cent in 1999;
Sweden starts with 6 per cent and ends up with 33 per cent. In the US the propor-
tion of long-term unemployed workers is over the whole period almost constant at
about 6 per cent and the average growth rate is constant as well. However, Sweden
and Canada display annual average growth rates of 7 respectively 9 per cent.
In Figure 2 GNP per capita growth rates for the groups of countries are shown.
Ireland displays the highest average annual growth rate of 3.7 per cent followed by
Italy with 1.9 per cent and Belgium and the U.K. with 1.8 per cent. All other
countries have positive growth rates at about 1 per cent or higher.
Thus, the stylized facts show that long-term unemployment is a serious problem and
simultaneously industrialized countries have positive growth rates.
Regarding this stylized fact, the relationship between long-term unemployment
and the rate of growth attributable to technical progress at different steady-state
1 Long-term unemployment is defined as percentage on total unemployment.