2001 Annual Forum

The estimates below represent the difference between the observed increase in the capital-to-labour ratio and the expected increase given the specific country's abundance of available labour. [...] 2001 5 The graph depicts the "excess" growth in the capital-to-labour ratio for each country in the sample, based on the expected value of the capital-to-labour ratio conditional on the country's unemployment rate. [...] In the model, job creation depends on the rate of capital investment, the nature of productivity growth, and the degree of substitutability of capital and labour. [...] 2001 16 Appendix 2) Calculating "excess" capital intensity The calculation of "excess" capital intensity for each country is based on the difference between the observed capital-to-labour ratio in 1997 and the expected value of the ratio conditional on the country's unemployment rate, as a proxy for the relative abundance of labour in the economy. [...] Calculating the total differential equations for this system yields a simultaneous differential equation system representing the differentials of the wage rate and quantity of labour employed as functions of the parameters of the system and the differential of public policy variable representing income transfers to the poor.