This paper investigates the determinants of long-run unemployment and growth by extending the endogenous growth model of Howitt and Aghion (1998) to allow for a more general treatment of the labor market in the spirit of Pissarides (1990). We find that (i) both long-run growth and unemployment depend not only on factors that affect long-run growth as identified in endogenous growth models with full employment, but also on certain labor market parameters; (ii) long-run unemployment may rise or fall with growth depending on the model's parameters; and (iii) though government policies that ...

<1. (7) To find a suitable employee, a firm has to incur a hiring cost [GAMMA]. We assume that the hiring cost is proportional to the wage rate W, that is, [GAMMA] = [gamma]W, where [gamma]><0 and [partial derivative]f/[partial derivative]s><1, then an increase in the growth rate g reduces the unemployment rate u; if the interest rate is endogenous and [epsilon]><0. Because the denominator [psi] is always positive, the sign of [partial derivative]u/[partial derivative]g depends on the sign of ([epsilon] - 1). As a result, we have [partial derivative]u/[partial derivative]g><) 0 if [epsilon]><) 1. Furthermore, [u|.sub.g = 0] = [u.sub.1]><0 and [partial derivative]f/[partial derivative]s><0, and [partial derivative]f/[partial derivative]s><1 and thus the interest rate effect is relatively weak, then the unemployment effects of the growth-related parameters remain quantitatively the same as in the case with a fixed interest rate; (ii) if the elasticity of marginal utility [epsilon] = 1 and thus the interest rate effect exactly offsets the growth effect, then changes in the growth-related parameters do not affect unemployment; and (iii) if the elasticity of marginal utility [epsilon]>