Long-term unemployment, technical progress and capital mobility in an open growth-matching model

How does technical progress affect long-term unemployment in a small open economy? This relationship is evaluated in an open neoclassical growth model that is extended by a Pissarides-style labor market matching approach. In the general equilibrium model, the labor market of the three factor growth model is characterized by immobile heterogeneous jobless workers. International capital mobility represents the efficient intertemporal allocation of world resources. Depending on a parametric growth condition, an increase in technical progress implies a favorable capitalization effect respectively an unfavorable Schumpeterian creative destruction effect. Secondary effects in form of a stigmatization and a human capital depreciation effect are generated and influence the unemployment duration and the fraction of long-term unemployment negatively. Additionally, the model shows that even in the steady state a constant current account deficit for a net debtor is sustained that rises even more as productivity growth increases.