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The Capital Stock and Equilibrium Unemployment: A New Theoretical Perspective Author info | Abstract | Publisher info | Download info | Related research | Statistics Sujit Kapadia
By assuming Cobb-Douglas production technology, many well-known imperfectly competitive macroeconomic models of the labour market (e.g. Layard, Nickell and Jackman, 1991) imply that equilibrium unemployment is independent of the capital stock. This paper introduces a new notion of capacity into the standard framework. Specifically, we adapt the Cobb-Douglas production function so that when the capital-labour ratio drops below a certain threshold, the returns to labour fall while the returns to capital increase. Using this assumption, we show that equilibrium unemployment depends on the capital stock over a certain range. We also briefly discuss the generalisation for an endogenous capital stock.
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number
181.
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Date of creation: 2003Date of revision:
Handle: RePEc:oxf:wpaper:181Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ Email: Web page: http://www.economics.ox.ac.uk/ More information through EDIRC
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Keywords: Unemployment ; Capital Stock ; Investment ; Capacity ; Technology. ; Other versions of this item:
Find related papers by JEL classification: E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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