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Falling Labor Share and Rising Unemployment: Long-Run Consequences of Institutional Shocks?

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  • Norbert Berthold
  • Rainer Fehn
  • Eric Thode

Abstract

The literature on unemployment has mostly focused on labor market issues while the impact of capital formation is largely neglected. Job creation is often thought to be a matter of encouraging more employment on a given capital stock. In contrast, this paper explicitly deals with the long-run consequences of institutional shocks on capital formation and employment. It is shown that the usual tradeoff between employment and wages disappears in the long run. In line with an appropriation model, the estimated values for the long-run elasticities of substitution between capital and labor for Germany and France are substantially greater than one. Copyright Verein für Socialpolitik and Blackwell Publishers Ltd 2002.

Suggested Citation

  • Norbert Berthold & Rainer Fehn & Eric Thode, 2002. "Falling Labor Share and Rising Unemployment: Long-Run Consequences of Institutional Shocks?," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 431-459, November.
  • Handle: RePEc:bla:germec:v:3:y:2002:i:4:p:431-459
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    Cited by:

    1. Andrew T. Young & Hernando Zuleta, 2016. "Golden Rules of Wages," Southern Economic Journal, Southern Economic Association, vol. 83(1), pages 253-270, July.
    2. Schmidt, Torsten & Vosen, Simeon, 2013. "Demographic change and the labour share of income," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 357-378.
    3. Rainer Klump & Peter McAdam & Alpo Willman, 2012. "The Normalized Ces Production Function: Theory And Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 769-799, December.
    4. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2008. "Unwrapping some euro area growth puzzles: Factor substitution, productivity and unemployment," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 645-666, June.
    5. repec:eee:deveco:v:127:y:2017:i:c:p:379-394 is not listed on IDEAS
    6. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo Group Munich.
    7. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2004. "Factor substitution and factor augmenting technical progress in the US: a normalized supply-side system approach," Working Paper Series 367, European Central Bank.
    8. Zuleta, Hernando, 2012. "Variable factor shares, measurement and growth accounting," Economics Letters, Elsevier, vol. 114(1), pages 91-93.
    9. Janko Gorter, 2005. "Subjective Expectations and New Keynesian Phillips Curves in Europe," DNB Working Papers 049, Netherlands Central Bank, Research Department.
    10. Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 443-456, March.
    11. Broadberry, Stephen & Ghosal, Sayantan & Proto, Eugenio, 2017. "Anonymity, efficiency wages and technological progress," Journal of Development Economics, Elsevier, vol. 127(C), pages 379-394.

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