Unemployment, Capital-Labor Substitution, and Economic Growth

Download or read book Unemployment, Capital-Labor Substitution, and Economic Growth written by Mr.Bob Rowthorn and published by International Monetary Fund. This book was released on 1999-03-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.