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Capital investment and unemployment in Europe: Neutrality or not?

  • Driver, Ciaran
  • Muñoz-Bugarin, Jair

Productivity variables are often said to have no effect on the NAIRU under wage bargaining as the labour share is unaffected when production is characterised by a unit elasticity of substitution. While production functions such as the CES can explain a negative relationship between investment and equilibrium unemployment, the implication then is that the labour share should increase with investment. In this paper we show that for a long sample in the UK, the labour share has decreased with capital investment. For a panel of European countries for which estimation is possible, the same result is obtained.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 32 (2010)
Issue (Month): 1 (March)
Pages: 492-496

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Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:492-496
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  12. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
  13. David Shepherd & Ciaran Driver, 2003. "Inflation and Capacity Constraints in Australian Manufacturing Industry," The Economic Record, The Economic Society of Australia, vol. 79(245), pages 182-195, 06.
  14. Madsen, Jakob B, 1998. "General Equilibrium Macroeconomic Models of Unemployment: Can They Explain the Unemployment Path in the OECD?," Economic Journal, Royal Economic Society, vol. 108(448), pages 850-67, May.
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  17. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
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