Unemployment, wage bargaining and capital-labour substitution |
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Authors: | Rowthorn R |
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Affiliation: | Faculty of Economics and Politics, Sidgwick Avenue, Cambridge, CB3 9DD, UK E-mail: Bob.Rowthorn@econ.cam.ac.uk |
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Abstract: | Many economists believe that capital accumulation, technicalprogress and labour force expansion have no lasting effect onunemployment. This view rests on the empirically doubtful assumptionthat the elasticity of substitution between labour and capitalis equal to unity (i.e., production is Cobb-Douglas). Usinga simple model based on the work of Layard, Nickell and Jackman,this paper demonstrates that, with a lower elasticity of substitution,the equilibrium unemployment rate is affected by all of theabove factors. It considers briefly how capital accumulationmay be endogenised and what long-run implications this has forunemployment. |
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Keywords: | Unemployment Capital Elasticity of substitution Bargaining Technical progress. |
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