Effects of Non-Tangible Capital in Spanish Labor Dynamics

The aim of this paper is to analyze the effect of non-tangible capital in the Spanish labor market. The importance of alternative forms of capital have been studied in the tradition of economic growth, as determinants of Total Factor Productivity (TFP), but the connection with the labor market is not so clear. To model the labor market this study will use the chain reaction theory (CRT) developed by Karanassou and Snower (1996, 1998). The CRT is a multi-equation approach to the labor market, that focuses in three main equations: labor demand, wage setting and labor supply. The modelling of non-physical capital is based on the augmented Cobb-Douglas production function developed by Audretsch and Keilbach (2004a). This functional form is augmented to include knowledge capital and entrepreneurial capital, and here we also add human capital. Because of the exploratory nature of this work, different variables were used to model the three forms of non-physical capital being also carried out at different levels of regional aggregation (NUTS-I, NUTS-II and NUTS-III). The results show a positive impact of entrepreneurial capital in labor demand, wage setting and labor force participation equations. Human capital affects positively labor demand and labor force participation and negatively the wage determination. Finally, it is important to notice the negative effect of knowledge capital for the three labor market equations as a special feature of the Spanish case