Falling Labor Share and Rising Unemployment: Long-Run Consequences of Institutional Shocks?

Berthold Norbert, Rainer Rainer and Thode Eric
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Berthold Norbert: University of Wuerzburg,Würzburg, Germany
Rainer Rainer: University of Munich and Ifo Research,München, Germany
Thode Eric: Bertelshann Foundation,Gütersloh, Germany

German Economic Review, 2002, vol. 3, issue 4, 431-459

Abstract: 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 tradeoff 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.

Date: 2002
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DOI: 10.1111/1468-0475.00067

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