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PKSG Working Paper Series

Working Paper PKWP1406

Unemployment, capital accumulation and labour market institutions in the Great Recession

May 2014

Engelbert Stockhammer, Alexander Guschanski, Karsten Kohler

The paper restates the post-Keynesian view of unemployment within a NAIRU framework. In the short run the private effective labour demand need not be downward sloping because of debt deflation and wage-led demand regimes. In the medium run the NAIRU will be endogenous because of the social norm character of wage setting and the supply-side effects of capital accumulation. Capital investment rather than labour market institutions is the crucial variable that explains changes in unemployment performance. We provide econometric evidence that the post-Keynesian view holds up well in the recession following the crisis 2008.

Keywords: Unemployment, NAIRU, Post Keynesian economics, panel analysis

JEL classification: E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity E25: Aggregate Factor Income Distribution

Download: Working Paper PKWP1406