Unemployment, wage bargaining, and the capital-labor substitution

Abstract

Rowthorn (Unemployment, Wage Bargaining, and the Capital-Labor Substitution, Cambridge Journal of Economics, 1999, pp. 413-25) has shown that if the elasticity of substitution between labor and capital is less than unity, there must be a negative relationship between capital stock and the unemployment rate, contrary to the conclusions of a typical NAIRU model. This research empirically investigates the two main implications of Rowthorn's analysis: that unemployment and capital stock are cointegrated, and that there is a negative relationship between them. This paper formulates and estimates a NAIRU model for a number of industrialized countries using a cointegration, vector error correction (VEC) approach. The empirical analysis clearly and unambigiously suggests that capital stock and the unemployment rate are cointegrated, and that an increase in capital stock reduces the unemployment rate. Using GMM, this paper also formulates and estimates the demand for labor equation in order to obtain direct estimates of the elasticity of substitution. As expected, the data show that the elasticity is well below unity. (JEL C10, E00) Market Potential of the Firm EVGENY V. POPOV Russian Academy of Sciences, Urals--RussiaThis paper aims to develop an integrated model of market activity of the firm on the basis of the application of an advanced economic toolkit. Input data were used to carry out the research using modern developments in management, marketing, and other applied economic disciplines. Managers of 50 firms of the Ural region of Russia were interrogated and the data were collected to develop a formalized structure of the market potential of the firm. The market potential of the firm is a collection of possibilities in the implemention of market activities. With the help of a functional structure toolkit of market potential, it is possible to formulate a model to quantitatively estimate the market potential in each sphere of actitvity of the firm. The calculation of current levels of usage of market potential involves rating the levels of implementation of activity in each functional area. Consequentl}; current levels of implementation of activity below strategic levels gives a basis for implementation of the strategy through the usage of a toolkit of market potential to arrive at a strategic level. (JEL D21) 337