Capital accumulation and unemployment: New insights on the Nordic experience

Marika Karanassou, Hector Sala, Pablo F. Salvador

Research output: Contribution to journalArticleResearchpeer-review

32 Citations (Scopus)

Abstract

This paper takes a fresh look at the analysis of labour market dynamics and argues that capital accumulation plays a fundamental role in determining unemployment movements. This role has generally been examined by considering indirect transmission channels of the capital stock effects, i.e. using variables like interest rates or investment ratios in the NAIRU framework. Here we advocate a different approach. We directly estimate the effects of capital stock in the labour market by applying the chain reaction theory of unemployment, and we find that capital stock is a major determinant of unemployment in the Nordic countries. In particular, the different unemployment experiences of these economies derive from the temporary (albeit prolonged) negative shocks to capital stock growth in Denmark and Sweden, and the permanent downturn of capital stock growth in Finland. We are thus able to explain why the crisis of the early 1990s had a more acute impact in Finland than in its twin economy, Sweden. © The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
Original languageEnglish
Pages (from-to)977-1001
JournalCambridge Journal of Economics
Volume32
Issue number6
DOIs
Publication statusPublished - 14 Nov 2008

Keywords

  • Capital accumulation
  • Chain reaction theory
  • Nordic countries
  • Unemployment dynamics

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