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Falling labor share and rising unemployment: Long-run consequences of institutional shocks?


  • Berthold, Norbert
  • Fehn, Rainer
  • Thode, Eric


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 trade off 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.

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  • Berthold, Norbert & Fehn, Rainer & Thode, Eric, 1999. "Falling labor share and rising unemployment: Long-run consequences of institutional shocks?," Discussion Paper Series 30, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
  • Handle: RePEc:zbw:wuewwb:30

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    References listed on IDEAS

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    Cited by:

    1. Berthold, Norbert & Fehn, Rainer & Thode, Eric, 1999. "Rigide Arbeitsmärkte und ungleiche Einkommensverteilung: Ein unlösbares Dilemma?," Discussion Paper Series 31, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    2. Heikki Kauppi & Erkki Koskela & Rune Stenbacka, 2004. "Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections," CESifo Working Paper Series 1343, CESifo Group Munich.

    More about this item


    Unemployment; Institutional Shocks; Appropriation; Elasticity of Substitution; Technical Change;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights


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