Capital Investment and Equilibrium Unemployment

Jósef Sigurdsson

Economics from Department of Economics, Central bank of Iceland

Abstract: Econometric analysis of cross-country data reveals a robust long-term relationship between capital investment and unemployment. This paper studies this relationship within a search and matching model of the labor market. In the model developed, firms employ labor for two purposes: for production of a final good and for production of capital. Quantitative analysis shows that an increase in growth of capital-production technology increases capital formation and employment in capital production, reducing unemployment in equilibrium. The model is therefore successful in generating the negative long-run investment-unemployment relationship found in macroeconomic data.

Date: 2013-02
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:ice:wpaper:wp61

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