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Capital Accumulation and Unemployment: New Insights on the Nordic Experience

Author

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  • Karanassou, Marika

    () (Queen Mary, University of London)

  • Sala, Hector

    () (Universitat Autònoma de Barcelona)

  • Salvador, Pablo F.

    () (Universidad Nacional de Cuyo)

Abstract

This paper takes a fresh look at the analysis of labour market dynamics and argues that capital accumulation plays a fundamental role in shaping 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 estimation of single-equation unemployment rate models. 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.

Suggested Citation

  • Karanassou, Marika & Sala, Hector & Salvador, Pablo F., 2007. "Capital Accumulation and Unemployment: New Insights on the Nordic Experience," IZA Discussion Papers 3066, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3066
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    References listed on IDEAS

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    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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    4. 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.
    5. Sujit Kapadia, 2003. "The Capital Stock and Equilibrium Unemployment: A New Theoretical Perspective," Economics Series Working Papers 181, University of Oxford, Department of Economics.
    6. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2003. "Unemployment in the European Union: Institutions, Prices, and Growth," IZA Discussion Papers 899, Institute for the Study of Labor (IZA).
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    Cited by:

    1. Roberto Bande Ramudo & Melchor Fernández Fernández & Víctor Montuenga Gómez, 2011. "Wage flexibility and local labour markets: homogeneity of the wage curve in Spain," Documentos de trabajo - Analise Economica 0044, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
    2. Klara Zwickl & Franziska Disslbacher & Sigrid Stagl, 2015. "Work-sharing for a sustainable economy," Ecological Economics Papers ieep4, Institute of Ecological Economics.
    3. 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.
    4. 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.
    5. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 334-354, December.
    6. Ángel Melguizo & José González-Páramo, 2013. "Who bears labour taxes and social contributions? A meta-analysis approach," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(3), pages 247-271, August.
    7. 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.
    8. Marika Karanassou & Hector Sala, 2012. "Distributional Consequences of Capital Accumulation, Globalisation and Financialisation in the US," Working Papers 695, Queen Mary University of London, School of Economics and Finance.
    9. Marika Karanassou & Hector Sala, 2012. "Productivity Growth And The Phillips Curve: A Reassessment Of The Us Experience," Bulletin of Economic Research, Wiley Blackwell, vol. 64(3), pages 344-366, July.
    10. David R. Howell, 2010. "Institutions, Aggregate Demand and Cross-Country Employment Performance: Alternative Theoretical Perspectives and the Evidence," Working Papers wp228, Political Economy Research Institute, University of Massachusetts at Amherst.
    11. Engelbert Stockhammer & Alexander Guschanski & Karsten Köhler, 2014. "Unemployment, capital accumulation and labour market institutions in the Great Recession," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 182-194, September.
    12. Nicos Christodoulakis & Christos Axioglou, 2016. "Underinvestment and unemployment: the double hazard in the euro area," Working Papers 205, Bank of Greece.
    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. Xavier Raurich (Universitat de Barcelona) & Valeri Sorolla (Universitat Autonoma de Barcelona), 2012. "Growth Models with Exogenous Saving Rates, Unemployment and Wage Inertia," Working Papers in Economics 287, Universitat de Barcelona. Espai de Recerca en Economia.
    15. Karanassou, Marika & Sala, Hector, 2008. "The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective," IZA Discussion Papers 3712, Institute for the Study of Labor (IZA).
    16. 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.
    17. Agnese, Pablo & Sala, Hector, 2009. "The fading 1990s in Japan: Driving forces behind the unemployment upsurge," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 428-439, June.
    18. Simon STURN, 2013. "Are corporatist labour markets different? Labour market regimes and unemployment in OECD countries," International Labour Review, International Labour Organization, vol. 152(2), pages 237-254, June.
    19. Zwickl, Klara & Disslbacher, Franziska & Stagl, Sigrid, 2016. "Work-sharing for a sustainable economy," Ecological Economics, Elsevier, vol. 121(C), pages 246-253.
    20. Dimitris Hatzinikolaou & Konstantina Girtzimani & Christos Mousafiris, 2015. "A Reduced-form Equation for the Unemployment Rate Estimated from a Panel of Nineteen OECD Countries," The Economic and Social Review, Economic and Social Studies, vol. 46(3), pages 389-397.
    21. Chella, Namapsa & Phiri, Andrew, 2017. "Long-run cointegration between foreign direct investment, direct investment and unemployment in South Africa," MPRA Paper 82371, University Library of Munich, Germany.
    22. Ioanna C. Bardakas, 2016. "Structural and cyclical factors of Greece’s current account balances: a note," Working Papers 206, Bank of Greece.
    23. Zwickl, Klara & Disslbacher, Franziska & Stagl, Sigrid, 2015. "Work-sharing for a sustainable economy," Ecological Economic Papers 4564, WU Vienna University of Economics and Business.
    24. Jósef Sigurdsson, 2013. "Capital Investment and Equilibrium Unemployment," Economics wp61, Department of Economics, Central bank of Iceland.
    25. Klara Zwickl & Franziska Disslbacher & Sigrid Stagl, 2016. "Work-sharing for a sustainable economy," WWWforEurope Working Papers series 111, WWWforEurope.

    More about this item

    Keywords

    chain reaction theory; Nordic countries; unemployment dynamics; capital accumulation;

    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

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