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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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    Cited by:
    1. Rainer Klump & Peter McAdam & Alpo Willman, 2004. "Factor substitution and factor augmenting technical progress in the US - a normalized supply-side system approach," Working Paper Series 367, European Central Bank.
    2. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo Group Munich.
    3. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 769-799, December.
    4. 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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