Capital accumulation and unemployment: A tale of two "continents"

In contrast to much recent work regarding the causes of European unemployme nt, in this paper we emphasize the importance of capital accumulation. But unlike the few previous studies which have examined the relationship betwee n capital accumulation and unemployment, we argue that what matters for the evolution of employment (and the unemployment rate) is not the absolute gr owth rate of a country's capital stock, but its evolution relative to other countries' capital stock. The empirical validity of the above statement is demonstrated for almost all OECD countries using quarterly time-series dat a for the period 1961-1995. More detailed evidence is also presented for Ge rmany, Japan and the United Kingdom.