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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

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.

Suggested Citation

  • Norbert Berthold & Rainer Fehn & Eric Thode, 2002. "Falling Labor Share and Rising Unemployment: Long–Run Consequences of Institutional Shocks?," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 431-459, November.
    • Handle: RePEc:bla:germec:v:3:y:2002:i:4:p:431-459
    DOI: 10.1111/1468-0475.00067
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