Financial Crises and Labor Market Turbulence

Sangeeta Pratap and Erwan Quintin ()

No 428, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: Financial crises cause a significant reallocation of labor as relative prices change drastically and economies confront a variety of shocks. Using household survey data for Mexico, we show that gross and net labor flows between industries and occupations increase substantially during the 1994-95 crisis. We also find significant wage losses associated with moving: individuals who switch industry or occupation during the crisis lose more than 10% of hourly earnings compared to similar workers who do not move. This suggests that crises are times of labor market turbulence, during which human capital is destroyed in the process of directing workers to different economic activities. This phenomenon could account for a significant part of the large fall in TFP that typically accompanies crises in emerging economies. We describe a map from our earnings estimates to aggregate TFP and show that productivity losses associated with occupation and industry changes can explain about 40% of the observed fall in TFPin Mexico in 1995.

Keywords: Financial crises; labor market turbulence; total factor productivity; output fluctuations (search for similar items in EconPapers)
JEL-codes: D14 D43 D91 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-eff and nep-lab
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Financial crises and labor market turbulence (2011)
Working Paper: Financial Crises and Labor Market Turbulence (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:htr:hcecon:428

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