This paper investigates how unemployment and the long—run growth rate influence each other, building on the approach in Pissarides (1990). A central finding is that there is a trade—off between successful growth and employment, if one considers direct changes in the growth rate. On the other hand, when growth and unemployment are changed in indirect ways, what is good for growth is also good for employment. Thus, if one wants to increase both growth and employment, a policy implication seems to be that one should improve incentives (lower capital taxes or unemployment benefits) rather than subsidize R&D activities.