The Relationship Between Wages and the Capital-Labor Ratio: Finnish Evidence on the Production Function

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http://hdl.handle.net/10138/135760
Title: The Relationship Between Wages and the Capital-Labor Ratio: Finnish Evidence on the Production Function
Author: Juselius, Mikael
Publisher: Hanken School of Economics
Date: 2004
Language: en
Belongs to series: 3
ISBN: 951-555-822-0
URI: http://hdl.handle.net/10138/135760
Abstract: In this paper, a positive empirical relationship between wages and the capital-labor share is established using Finnish manufacturing data. This relationship is consistent with a modeling approach for the Finnish economy that assumes a CES production function and imperfections in both product and labor markets. The popular Cobb-Douglas production function is inconsistent with the observed relationship. Moreover, the estimations are consistent with an elasticity of substitution above one. The results are further strengthened by a positive relationship between unemployment and the capital-labor share through its effect on the wage rate. The estimations also provide insights into the processes determining the output-labor ratio, capital-labor ratio and investments.
Subject (ysa): cointegration
production function
VAR-model
labor markets


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