Unemployment, Capital-Labor Substitution, and Economic Growth

38 Pages Posted: 12 Feb 2006

See all articles by Bob (R. E.) Rowthorn

Bob (R. E.) Rowthorn

University of Cambridge - Faculty of Economics

Date Written: March 1999

Abstract

This paper discusses the influence of economic growth on the equilibrium unemployment rate (NAIRU). It examines how income distribution and the NAIRU are influenced by capital formation, technical progress, and labor force expansion, and how these factors` impact depends on the elasticity of substitution between capital and labor. The paper distinguishes between the short-run NAIRU when capital stock is exogenous, and the long-run NAIRU when it is endogenous. It also considers how the analysis must be modified to take into account Keynesian ideas concerning the role of aggregate demand. It concludes that unless the capital stock grows in line with labor supply in efficiency units, the short-run NAIRU will increase, reducing the scope for demand stimulation.

Keywords: Unemployment, Capital, Elasticity of Substitution, Bargaining, Technical Progress

JEL Classification: E23, E24, E25

Suggested Citation

Rowthorn, Bob (R. E.), Unemployment, Capital-Labor Substitution, and Economic Growth (March 1999). IMF Working Paper No. 99/43, Available at SSRN: https://ssrn.com/abstract=880570

Bob (R. E.) Rowthorn (Contact Author)

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DE
United Kingdom

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