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On the Effects of Wage Pressure on the Unemployment Rate and Capital Share

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  • Takashi Ohno

Abstract

The purpose of this paper is to understand the behaviour of the capital share and the unemployment rate in Europe over the past quarter of a century. We consider a model with monopolistic competition, increasing returns and an imperfect labour market, assuming that the elasticity between capital and labour is less than unity. Previous works have generally assumed constant returns to scale. Our results offer an important conclusion, namely that increased wage pressure will increase the unemployment rate and the capital share even though the latter initially decreases, which fits the stylized facts about the studied economies. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2006.

Suggested Citation

  • Takashi Ohno, 2006. "On the Effects of Wage Pressure on the Unemployment Rate and Capital Share," German Economic Review, Verein für Socialpolitik, vol. 7, pages 389-401, November.
  • Handle: RePEc:bla:germec:v:7:y:2006:i::p:389-401
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    References listed on IDEAS

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    1. Bentolila Samuel & Saint-Paul Gilles, 2003. "Explaining Movements in the Labor Share," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-33, October.
    2. Leo Kaas & Leopold von Thadden, 2003. "Unemployment, Factor Substitution and Capital Formation," German Economic Review, Verein für Socialpolitik, vol. 4, pages 475-495, November.
    3. Henriksen, E & Knarvik, K.H.M. & Steen, F., 2001. "Economies of Scale in European Manufacturing Revisited," Papers 12/2001, Norwegian School of Economics and Business Administration-.
    4. Solow,Robert M., 1998. "Monopolistic Competition and Macroeconomic Theory," Cambridge Books, Cambridge University Press, number 9780521626163.
    5. Blanchard, Olivier, 1998. "Revisiting European Unemployment : Unemployment, Capital Accumulation and Factor Prices," Research Series, Economic and Social Research Institute (ESRI), number GLS28.
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