Structural unemployment, underemployment, and secular stagnation

In this paper, we show that underemployment and not necessarily high unemployment becomes the main measure of economic slack in labor market under secular stagnation. Specifically, involuntary form a persistent shortfall working hours occurs search matching model, provided households derive utility from holding wealth, quickly dominates total employment gap Conventional policy measures aimed at reducing may increase through their effects on should be used with caution. contrast, increases aggregate demand improve hours, while productivity worsen without improving (“paradox toil”). Our analysis provides new insights into empirical puzzles such as Japan's seemingly decent record during its lost decades.