 The Unemployment AcceleratorJulio Blanco and Gaston Navarro No 6248, CESifo Working Paper Series from CESifo Abstract: This paper studies the unemployment accelerator, a mechanism where workers directly affect the firms’ financial conditions, and, in turn, firms’ financial conditions feedback again to the real economy. The unemployment accelerator builds on two key assumptions: search frictions in the labor market and firms’ default risk. The former assumption implies a positive relation between the firm’s value and its number of workers; the latter assumption entails a tight connection between the value of the workers and the firm’s incentives to default. We develop and estimate a model with these two frictions together with firm-level heterogeneity; and show the model matches firm-level statistics as well as business cycle fluctuations in labor and financial markets. We provide compelling micro-evidence of the unemployment accelerator: a 10% increase in a firm’s number of workers is associated with a 4% increase in its market value and a 6% decline in its probability of default. We show that our model can account for these facts, and that the two key assumptions we make are essential for this. Keywords: unemployment; default risk; credit market frictions; search frictions; wage bargaining (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6248 Access Statistics for this paper More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.