Capital stock, unemployment and wages in the UK and Germany

This paper is concerned with the view that capital formation is an importan t variable in the determination of unemployment and wages in Germany and th e UK. Adverse demand shocks affect employment and investment. When shocks r everse, unemployment may not fall to previous levels due to insufficient ca pital. The empirical results show that unemployment has risen in the last t wenty years in both countries due to insufficient investment. Policies that are aimed at stimulating investment may have a permanent effect on unemplo yment in Germany and the UK.