Capital accumulation and unemployment: new insights on the Nordic experience
AbstractThis paper takes a fresh look at the analysis of labour market dynamics and argues that capital accumulation plays a fundamental role in determining unemployment movements. This role has generally been examined by considering indirect transmission channels of the capital stock effects, i.e. using variables like interest rates or investment ratios in the NAIRU framework. Here we advocate a different approach. We directly estimate the effects of capital stock in the labour market by applying the chain reaction theory of unemployment, and we find that capital stock is a major determinant of unemployment in the Nordic countries. In particular, the different unemployment experiences of these economies derive from the temporary (albeit prolonged) negative shocks to capital stock growth in Denmark and Sweden, and the permanent downturn of capital stock growth in Finland. We are thus able to explain why the crisis of the early 1990s had a more acute impact in Finland than in its twin economy, Sweden. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Cambridge Journal of Economics.
Volume (Year): 32 (2008)
Issue (Month): 6 (November)
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Other versions of this item:
- Karanassou, Marika & Sala, Hector & Salvador, Pablo F., 2007. "Capital Accumulation and Unemployment: New Insights on the Nordic Experience," IZA Discussion Papers 3066, Institute for the Study of Labor (IZA).
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
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