Unemp,_Cap_Accum_&_Real_Wages
Olivier Blanchard *
February 1998
The purpose of this second model is to provide a way of interpreting the joint
evolutions of employment and capital, real wages, and real interest rates. It im-
proves upon the first model by introducing capital accumulation, and technologi-
cal progress. (It is a simpler version of the model developed in my Brookings paper,
"The Medium Run". )
The note has three parts. First, the facts that led me to explore such a model.
Then the model, and the analysis of the dynamic effects of various shocks. -Fhen,
a brief summary of the findings in the "Medium run" paper.
1 Some facts
Figure l shows the evolution of the unemployment rate in the three major con-
tinental European countries, Germany, France and Italy (the picture is the same
when looking at continental Europe as a whole). It documents the steady increase
in unemployment since the early 1970s.
Figure 2 shows a set of facts that is less well-known, but would appear to be rel-
evant in trying to understand European evolutions. It shows the evolution of the
capital share in the business sector in the same three countries since the early
1970s. The evolution is largely common and quite striking: a substantial decrease
from the mid 1970s to the mid 1980s, but a large increase since. In all four coun-
tries, capital shares stand at a much higher level than in 1970. |