Unemployment, Factor Substitution and Capital Formation
AbstractWe incorporate a wage-bargaining structure in a dynamic general equilibrium model and show how this feature changes short- and long-run properties of equilibria compared with a perfectly competitive setting. We discuss how employment, capital and income shares respond to wage-setting shocks and show that adjustment dynamics depend decisively on the magnitude of the elasticity of substitution between labour and capital. Values of the elasticity below unity add persistence, tend to preserve stability and lead to empirically plausible adjustment patterns. By contrast, values above unity introduce additional volatility, thereby making steady states potentially unstable. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd 2003.
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Bibliographic InfoArticle provided by Verein für Socialpolitik in its journal German Economic Review.
Volume (Year): 4 (2003)
Issue (Month): (November)
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Other versions of this item:
- Kaas, Leo & von Thadden, Leopold, 2001. "Unemployment, Factor Substitution, and Capital Formation," Discussion Paper Series 1: Economic Studies 2001,01, Deutsche Bundesbank, Research Centre.
- Leo Kaas & Leopold von Thadden, 2001. "Unemployment, Factor Substitution, and Capital Formation," Vienna Economics Papers 0102, University of Vienna, Department of Economics.
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
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