The Financial Channels of Labor Rigidities: Evidence from Portugal

Ettore Panetti and Edoardo Maria Acabbi
Authors registered in the RePEc Author Service: Alessandro Sforza

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: How do credit shocks affect labor market reallocation, firms’ exit and other real outcomes? How do labor-market rigidities impact their propagation? To answer these questions, we match administrative data on worker, firms, banks and credit relationships in Portugal, and conduct an event study of the interbank market freeze at the end of 2008. Our results highlight that the credit shock had significant effects on employment dynamics and firms’ survival. These findings are entirely driven by the interaction of the credit shock with labor market frictions, determined by rigidities in labor costs and exposure to working-capital financing, which we label “labor-as-leverage” and “labor-as-investment” financial channels. The credit shock explains about 29 percent of the employment loss among large Portuguese firms between 2008 and 2013, and contributes to productivity losses due to increased labor misallocation.

JEL-codes: D24 E24 G21 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: The Financial Channels of Labor Rigidities: Evidence from Portugal (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201915

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