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Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections

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  • Heikki Kauppi
  • Erkki Koskela
  • Rune Stenbacka

Abstract

We study the implications of product and labor market imperfections for equilibrium unemployment under both exogenous and endogenous capital intensity. With endogenous capital intensity, stronger labor market imperfections always increase equilibrium unemployment. The relationship between the long-run unemployment and the intensity of product market competition is not necessarily monotonic, but there is an elasticity of substitution between capital and labor below one such that the long-run equilibrium unemployment is an increasing function of product market imperfections when the elasticity exceeds this threshold. Higher interest rates increase (decrease) the long-run equilibrium unemployment when the elasticity of substitution is below (above) one.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-11/cesifo1_wp1343.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1343.

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Date of creation: 2004
Date of revision:
Handle: RePEc:ces:ceswps:_1343

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Keywords: equilibrium unemployment; product market imperfections; capital intensity; wage bargaining;

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Cited by:
  1. Marika Karanassou & Hector Sala & Dennis Snower, 2007. "The Macroeconomics of the Labor Market: Three Fundamental Views," Kiel Working Papers 1378, Kiel Institute for the World Economy.
  2. Helge Berger & Stephan Danninger, 2007. "The Employment Effects of Labor and Product Market Deregulation and Their Implications for Structural Reform," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 591-619, July.
  3. Helge Berger & Stephan Danninger, 2005. "Labor and Product Market Deregulation," IMF Working Papers 05/227, International Monetary Fund.

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