Year: 2004
Type: book
Abstract: By assuming Cobb-Douglas production technology, many well-known imperfectly\ncompetitive macroeconomic models of the labour market (e.g. Layard, Nickell and\nJackman, 1991) imply that equilibrium unemployment is independent of the capital\nstock. This paper introduces a new notion of capacity into the standard framework.\nSpecifically, we adapt the Cobb-Douglas production function so that when the capitallabour\nratio drops below a certain threshold, the returns to labour fall while the returns\nto capital increase. Using this assumption, we show that equilibrium unemployment\ndepends on the capital stock over a certain range. We also briefly discuss the\ngeneralisation for an endogenous capital stock.
Author: Sujit Kapadia
Institution: University of Oxford
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2169774406