Capital Stock and Unemployment: Searching for the Missing Link

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTThe purpose of this paper is to examine the proposition that capital stock relative to aggregate output has been an important variable in the determination of the U.S.NAIRU (Non-Accelerating Inflation Rate of Unemployment) over the last four decades.We present new empirical evidence, obtained from the application of the cointegrated VAR methodology to U.S. time-series data, that lends strong support to the claim that the aggregate capital-output ratio, the real price of imports, and aggregate capacity utilization were determinants of the NAIRU in the period considered. The same evidence also shows that technical progress and changes in long-term unemployment did not affect the NAIRU. We believe this evidence suggests that, insofar as the aggregate capital-output ratio is affected by changes in real interest rates, the stance of monetary policy is one determinant of the NAIRU.

Finance, income distribution and unemployment

“…Αποτέλεσμα της υπόθεσης αυτής είναι η εξασφάλιση της ουδετερότητας της παραγωγικής ικανότητας και η δυνατότητα επίτευξης της μακροχρόνιας ισορροπίας, χωρίς να αμφισβητείται η ερμηνεία της ανεργίας μέσω των ακαμψιών στην αγορά εργασίας Arestis andMariscal, 1997, 1998;Sawyer, 1998Sawyer, , 2001. Ωστόσο η χρησιμοποίηση του 'ενεργού' αποθέματος κεφαλαίου σε σχέση με τα επίπεδα της ανεργίας, μπορεί να οδηγήσει σε οικονομική άνθηση χωρίς να επιφέρει πληθωριστικές πιέσεις (Sawyer, 1998(Sawyer, , 2002Rowthorn, 1999;Atesoglu and Smithin, 2006;Palacio Vera et al, 2006).…”

“…As a consequence, unemployment (involuntary) could be limited through downward adjustments of (real) wages in excess supply markets that are slower than upward adjustments in excess demand market. Moreover, contrary to NAIRU, the adoption of inflation barrier implies neither full capacity and employment conditions nor its treatment as a strong, or weak in some cases, indicator of actual economy; it assumes the dependency between demand and supply side levels 134 According to Palacio Vera et al (2006) the equality between rates of wage and price growth with those of productivity is required for ensuring the constancy of capital-output ratio and therefore the presence of wage aspiration. Further, in new Keynesian literature, i.e.…”

“…However an 'active' role of capital stock in the production process requires appropriate shifts in the capital-output ratio, as long as its upward shifts affect long run equilibrium; a higher level of capital stock, relative to levels of output or labour, is converted into higher labour productivity that in turn mitigates inflationary pressures. In this process, changes in capital-output ratio 98 distinguish productivity from wage growth rates 99 so that neutrality assumptions to be cancelled, whereas employment is accelerated without the creation of harmful inflationary pressures as in new Keynesian grounds (Sawyer, 1998(Sawyer, , 2002Rowthorn, 1999;Atesoglu and Smithin, 2006;Palacio Vera et al, 2006). It can thereby be said that the appropriate use of capital stock on equilibrium unemployment levels is consistent with economic expansion and unemployment reductions without causing harmful inflationary pressures.…”

“…The adoption of this assumption implies that only long run economic activity is affected by changes in the capital-output ratio, without moving labour market rigidities and imperfections from the center of the analysis, although they explain unemployment only partly (Layard et al, 1991;Nickell, 1997Nickell, , 1998Siebert, 1997). Besides, it is recognised that the unity elasticity 98 According to Palacio-Vera et al (2006), changes in capital-labour ratio derive either from changes in technology or price of labour as well as the rental price of capital levels, or even from changes in the path of investment in physical capital for other reasons. 99 In mainstream grounds, with respect to neutrality conditions, productivity changes are reflected on real wages that ensure the absence of any inflation change (Blanchard and Katz, 1997).…”

“…In these conditions, capacity shortages and thereby income redistribution are responsible for inflationary problems, for example in cases where demand runs ahead capacity levels or in the presence of inadequate capacity level to support full employment.132 Moreover demand level variations affect the levels of fixed and physical capital and thereby the potential output of the economy directly(Palacio-Vera et al, 2006).…”