EconPapers    
Economics at your fingertips  
 

Lending relationships and labor market dynamics

Alan Finkelstein Shapiro () and Maria Pia Olivero

European Economic Review, 2020, vol. 127, issue C

Abstract: Motivated by a negative link between credit spreads and labor force participation (LFP) and a positive link between these spreads and unemployment over the business cycle, we study the role of LFP as an amplification mechanism of financial shocks in a labor search model with endogenous LFP, lending relationships, and credit-market disruptions. Amid aggregate productivity and financial shocks that replicate the empirical volatility of LFP and credit spreads, the model produces highly volatile unemployment and vacancies, countercyclical credit spreads and unemployment, and procyclical LFP. When we quantitatively match the cyclical behavior of credit spreads, the interaction between endogenous LFP and financial shocks gives rise to much sharper vacancy fluctuations and plays a key role in generating quantitatively factual cyclical labor market dynamics.

Keywords: Unemployment; Endogenous labor force participation; Financial shocks; Deep habits in credit markets; Lending relationships (search for similar items in EconPapers)
JEL-codes: E24 E32 E44 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292120301070
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Lending Relationships and Labor Market Dynamics (2018) Downloads
Working Paper: Lending Relationships and Labor Market Dynamics (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:127:y:2020:i:c:s0014292120301070

DOI: 10.1016/j.euroecorev.2020.103475

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-04-08
Handle: RePEc:eee:eecrev:v:127:y:2020:i:c:s0014292120301070