Accumulation and European unemployment
This dissertation aims at developing a Keynesian explanation of the rise of European unemployment from the 1960s to the 1990s. It is motivated by the dissatisfaction with the mainstream NAIRU explanation of European unemployment.
Chapter 1 develops a theoretical model that allows for wage led as well as for profit led growth. Unemployment has a negative effect of on the wage share (reserve army effect), which distinguishes it from most Keynesian growth models. Equilibrium values and stability conditions are analyzed for the short run and the long run. Profit led regimes do have a stable long run equilibrium rate of unemployment that will determine actual unemployment, but a crucial difference with the NAIRU is that equilibrium unemployment is not independent of demand. The wage led regime does not exhibit a stable equilibrium rate of unemployment in the long run.
Chapter 2 tests the employment function and contrasts it with the mainstream NAIRU explanation of European unemployment that asserts that labor market institutions are at the root of high unemployment rates. In the Keynesian explanation, the slowdown of accumulation is the major cause of the rise of European unemployment. Econometric tests are performed for Germany, France, Italy, the UK and the USA for the period 1960–95. Our finding is that with this sample parameter estimates for labor market variables such as unemployment benefits, union density or the tax wedge often are insignificant, have the “wrong” signs and, if they are significant with the predicted sign they are not robust to minor changes in the specification. Accumulation on the other hand has negative effect on unemployment that is robust.
Chapter 3 argues that financialization, i.e. the changing relation between the financial and the industrial sector, has played an important role in reducing accumulation. The shareholder revolution aligned management's interests with those of shareholders, causing a shift of management priorities from growth to profits. The argument is tested econometrically. The measure of financialization performs at least as good as standard variables, such as output growth, profits or the cost of capital, in many cases better. Calculation with the estimated parameters confirm that financialization does potentially explain an economically significant part of the slowdown in accumulation, though the results vary by country.