Financial markets and unemployment

Tommaso Monacelli, Vincenzo Quadrini and Antonella Trigari ()

Journal of Financial Economics, 2023, vol. 147, issue 3, 596-626

Abstract: We study the importance of financial markets for (un)employment fluctuations in a model with matching frictions where firms borrow under limited enforcement. Borrowing affects employment through a ‘debt bargaining channel’: higher debt improves the bargaining position of employers with workers and increases the incentive to hire. We estimate the model structurally and find that the debt bargaining channel accounts for 26 percent of unemployment fluctuations. We find empirical support for the channel at the micro level using firm level data from Compustat.

Keywords: Debt; Wage bargaining; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Financial Markets and Unemployment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:3:p:596-626

DOI: 10.1016/j.jfineco.2023.01.001

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