Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections

40 Pages Posted: 10 Dec 2004

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Heikki Kauppi

University of Turku - Department of Economics; Bank of Finland - Research; University of Helsinki - Department of Political and Economic Studies

Rune Stenbacka

Hanken School of Economics

Date Written: November 2004

Abstract

We study the implications of product and labor market imperfections for equilibrium unemployment under both exogenous and endogenous capital intensity. With endogenous capital intensity, stronger labor market imperfections always increase equilibrium unemployment. The relationship between the long-run unemployment and the intensity of product market competition is not necessarily monotonic, but there is an elasticity of substitution between capital and labor below one such that the long-run equilibrium unemployment is an increasing function of product market imperfections when the elasticity exceeds this threshold. Higher interest rates increase (decrease) the long-run equilibrium unemployment when the elasticity of substitution is below (above) one.

Keywords: equilibrium unemployment, product market imperfections, capital intensity, wage bargaining

JEL Classification: E22, E24, J51, L11

Suggested Citation

Koskela, Erkki and Kauppi, Heikki and Stenbacka, Rune, Equilibrium Unemployment and Capital Intensity Under Product and Labor Market Imperfections (November 2004). CESifo Working Paper Series No. 1343. Available at SSRN: https://ssrn.com/abstract=633022

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Heikki Kauppi

University of Turku - Department of Economics ( email )

20014 Turku
Finland

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies

P.O. Box 54
FIN-00014 Helsinki
Finland

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)

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