IDEAS home Printed from https://ideas.repec.org/a/oup/cambje/v32y2008i6p977-1001.html
   My bibliography  Save this article

Capital accumulation and unemployment: new insights on the Nordic experience

Author

Listed:
  • Marika Karanassou
  • Hector Sala
  • Pablo F. Salvador

Abstract

This paper takes a fresh look at the analysis of labour market dynamics and argues that capital accumulation plays a fundamental role in determining unemployment movements. This role has generally been examined by considering indirect transmission channels of the capital stock effects, i.e. using variables like interest rates or investment ratios in the NAIRU framework. Here we advocate a different approach. We directly estimate the effects of capital stock in the labour market by applying the chain reaction theory of unemployment, and we find that capital stock is a major determinant of unemployment in the Nordic countries. In particular, the different unemployment experiences of these economies derive from the temporary (albeit prolonged) negative shocks to capital stock growth in Denmark and Sweden, and the permanent downturn of capital stock growth in Finland. We are thus able to explain why the crisis of the early 1990s had a more acute impact in Finland than in its twin economy, Sweden. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Suggested Citation

  • Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "Capital accumulation and unemployment: new insights on the Nordic experience," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 977-1001, November.
  • Handle: RePEc:oup:cambje:v:32:y:2008:i:6:p:977-1001
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/cje/ben022
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. Roberto Bande & Marika Karanassou, 2009. "Labour market flexibility and regional unemployment rate dynamics: Spain 1980–1995," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 181-207, March.
    4. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2006. "Unemployment, Growth, And Fiscal Policy: New Insights On The Hysteresis Hypothesis," Macroeconomic Dynamics, Cambridge University Press, vol. 10(3), pages 285-316, June.
    5. Karanassou, Marika & Sala, Hector & Snower, Dennis, 2003. "Unemployment in the European Union: a dynamic reappraisal," Economic Modelling, Elsevier, vol. 20(2), pages 237-273, March.
    6. Sujit Kapadia, 2003. "The Capital Stock and Equilibrium Unemployment: A New Theoretical Perspective," Economics Series Working Papers 181, University of Oxford, Department of Economics.
    7. Marika Karanassou & Hector Sala & Dennis J. Snower, 2003. "Unemployment in the European Union: Institutions, Prices, and Growth," Working Papers 493, Queen Mary University of London, School of Economics and Finance.
    8. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    9. Marika Karanassou & Dennis J. Snower, 2004. "Unemployment Invariance," German Economic Review, Verein für Socialpolitik, vol. 5(3), pages 297-317, August.
    10. Jaakko Pehkonen, 1999. "Wage formation in Finland, 1960-1994," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 82-91, Autumn.
    11. Jim Malley & Thomas Moutos, 2001. "Capital Accumulation and Unemployment: A Tale of Two “Continents”," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 79-99, March.
    12. Philip Arestis & Iris Biefang‐Frisancho Mariscal, 2000. "Capital Stock, Unemployment and Wages in the UK and Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(5), pages 487-503, November.
    13. Philip Arestis & Michelle Baddeley & Malcolm Sawyer, 2007. "The Relationship Between Capital Stock, Unemployment And Wages In Nine Emu Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 59(2), pages 125-148, April.
    14. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "The (Ir)Relevance Of The Nru For Policy Making: The Case Of Denmark," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 369-392, July.
    15. Green-Pedersen, Christoffer, 2001. "Minority governments and party politics: The political and institutional background to the Danish Miracle," MPIfG Discussion Paper 01/1, Max Planck Institute for the Study of Societies.
    16. Jaakko Kiander & Jaakko Pehkonen, 1999. "Finnish unemployment: observations and conjectures," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 94-108, Autumn.
    17. Green-Pedersen, Christoffer, 2001. "Minority Governments and Party Politics: The Political and Institutional Background to the “Danish Miracleâ€," Journal of Public Policy, Cambridge University Press, vol. 21(1), pages 53-70, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    2. Marika Karanassou & Hector Sala, 2008. "The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective," Working Papers 633, Queen Mary University of London, School of Economics and Finance.
    3. Marika Karanassou & Hector Sala, 2010. "Labour Market Dynamics in Australia: What Drives Unemployment?," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 185-209, June.
    4. Marika Karanassou & Hector Sala & Dennis Snower, 2007. "The macroeconomics of the labor market: three fundamental views," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 151-180, December.
    5. Roberto Bande & Marika Karanassou, 2014. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," Regional Studies, Taylor & Francis Journals, vol. 48(11), pages 1863-1883, November.
    6. Martin Leites & Sylvina Porras, 2013. "El enfoque de la Reacción en Cadena: una aplicación para explicar la dinámica del desempleo en Uruguay," Documentos de Trabajo (working papers) 13-11, Instituto de Economia - IECON.
    7. Roberto Bande Ramudo & Manuel Fernández Grela & Mª Dolores Riveiro García, 2011. "Consumption, Saving, Investment, and Unemployment. SVAR Tests of the Effects of Changes in the Consumption-Saving Pattern," Documentos de trabajo - Analise Economica 0045, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
    8. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2006. "Unemployment, Growth, And Fiscal Policy: New Insights On The Hysteresis Hypothesis," Macroeconomic Dynamics, Cambridge University Press, vol. 10(3), pages 285-316, June.
    9. António Afonso & André Albuquerque, 2018. "Sovereign Credit Rating Mismatches," Notas Económicas, Faculty of Economics, University of Coimbra, issue 46, pages 1-22, July.
    10. Bruno Damásio & Diogo Martins, 2017. "Do Labour Market Reforms Pay Off? Unemployment and Capital Accumulation in Portugal," Working Papers Department of Economics 2017/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    11. Marwa Sahnoun & Chokri Abdennadher, 2018. "The assessment of active labor market policies: evidence from OECD countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 257-283, August.
    12. Vasiliki Bozani, 2011. "NAIRU, Unemployment and Post Keynesian Economics," Working Papers 1104, University of Crete, Department of Economics.
    13. Roberto Bande & Marika Karanassou, 2011. "The NRU and the Evolution of Regional Disparities in Spanish Unemployment," Working Papers 681, Queen Mary University of London, School of Economics and Finance.
    14. Marcel Garz & Artur Tarassow, 2011. "Does an expanding low-pay sector decrease structural unemployment? Evidence from Germany," Macroeconomics and Finance Series 201104, University of Hamburg, Department of Socioeconomics.
    15. Bande, Roberto & Riveiro, Dolores, 2012. "The Consumption-Investment-Unemployment Relationship in Spain: an Analysis with Regional Data," MPRA Paper 42681, University Library of Munich, Germany.
    16. Diogo Martins & Bruno Damásio, 2020. "One Troika fits all? Job crash, pro-market structural reform and austerity-driven therapy in Portugal," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(3), pages 495-521, August.
    17. Leites, Martín & Porras, Sylvina, 2016. "Unemployment dynamics in Uruguay: an analysis using chain reaction theory," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    18. Philip Arestis & Michelle Baddeley & Malcolm Sawyer, 2007. "The Relationship Between Capital Stock, Unemployment And Wages In Nine Emu Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 59(2), pages 125-148, April.
    19. Erkki Koskela & Roope Uusitalo, 2003. "The Un-Intended Convergence: How the Finnish Unemployment Reached the European Level," CESifo Working Paper Series 878, CESifo.
    20. Mbekeni, Lutho & Phiri, Andrew, 2019. "South African unemployment in the post-financial crisis era: What are the determinants?," MPRA Paper 94159, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:cambje:v:32:y:2008:i:6:p:977-1001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) The email address of this maintainer does not seem to be valid anymore. Please ask Oxford University Press to update the entry or send us the correct email address or (Christopher F. Baum). General contact details of provider: https://academic.oup.com/cje .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.