Financial Shocks and Labor: Facts and Theories

Tito Boeri, Pietro Garibaldi and Espen Moen ()

IMF Economic Review, 2013, vol. 61, issue 4, 663 pages

Abstract: The global financial recession of 2008–9 as well as historical precedents with financial crises suggest that financial shocks do translate into the labor markets. This paper first documents that financial recessions are different from other recessions in terms of their labor market impact, as they involve a larger employment/unemployment response conditioning on output. Second, it surveys the various mechanisms linking financial shocks to employment adjustment, developing a new theory of the effects of leverage on job creation and destruction. Third, it presents evidence coherent with one of such mechanisms, notably with the prediction that more leveraged firms experience larger job destruction during financial recessions, controlling for the scale of output falls.

Date: 2013
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