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Unemployment, Factor Substitution, and Capital Formation

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Author Info
Leo Kaas ()
Leopold von Thadden ()

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Abstract

We 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.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0102.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0102.

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Date of creation: Jan 2001
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Handle: RePEc:vie:viennp:0102

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Web page: http://www.univie.ac.at/vwl

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Find related papers by JEL classification:
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
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

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  1. Tetsuo Ono, 2007. "Unemployment dynamics in an OLG economy with public pensions," Economic Theory, Springer, vol. 33(3), pages 549-577, December. [Downloadable!] (restricted)
  2. Erkki Koskela & Leopold von Thadden, 2003. "Optimal Factor Taxation under Wage Bargaining -- A Dynamic Perspective," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Koskela, Erkki & von Thadden, Leopold, 2002. "Optimal factor taxation under wage bargaining: A dynamic perspective," Discussion Paper Series 1: Economic Studies 2002,31, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Rainer Klump & Peter McAdam & Alpo Willman, 2004. "Factor Substitution and Factor Augmenting Technical Progress in the US: A Normalized Supply-Side System Approach," DEGIT Conference Papers c009_030, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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