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Falling Labor Share and Rising Unemployment: Long-Run Consequences of Institutional Shocks?

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  • Norbert Berthold
  • Rainer Fehn
  • Eric Thode
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    Abstract

    The literature on unemployment has mostly focused on labor market issues while the impact of capital formation is largely neglected. Job creation is often thought to be a matter of encouraging more employment on a given capital stock. In contrast, this paper explicitly deals with the long-run consequences of institutional shocks on capital formation and employment. It is shown that the usual tradeoff between employment and wages disappears in the long run. In line with an appropriation model, the estimated values for the long-run elasticities of substitution between capital and labor for Germany and France are substantially greater than one. Copyright Verein für Socialpolitik and Blackwell Publishers Ltd 2002.

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    Bibliographic Info

    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 3 (2002)
    Issue (Month): 4 (November)
    Pages: 431-459

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    Handle: RePEc:bla:germec:v:3:y:2002:i:4:p:431-459

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    1. Caballero, Ricardo J. & Hammour, Mohamad L., 1998. "Jobless growth: appropriability, factor substitution, and unemployment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 51-94, June.
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    6. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    7. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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    11. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
    12. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
    13. Richard Jackman, 1995. "Unemployment and Wage Inequality in OECD Countries," CEP Discussion Papers dp0235, Centre for Economic Performance, LSE.
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    15. Olivier Blanchard, 1995. "Macroeconomic implications of shifts in the relative demand for skills," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 48-53.
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    Cited by:
    1. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo Group Munich.
    2. Zuleta, Hernando, 2012. "Variable factor shares, measurement and growth accounting," Economics Letters, Elsevier, vol. 114(1), pages 91-93.
    3. Torsten Schmidt & Simeon Vosen, 2013. "Demographic change and the labour share of income," Journal of Population Economics, Springer, vol. 26(1), pages 357-378, January.
    4. Rainer Klump & Peter McAdam & Alpo Willman, 2004. "Factor Substitution and Factor Augmenting Technical Progress in the US: A Normalized Supply-Side System Approach," DEGIT Conference Papers c009_030, DEGIT, Dynamics, Economic Growth, and International Trade.
    5. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2011. "The normalized CES production function: theory and empirics," Working Paper Series 1294, European Central Bank.
    6. Janko Gorter, 2005. "Subjective Expectations and New Keynesian Phillips Curves in Europe," DNB Working Papers 049, Netherlands Central Bank, Research Department.

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