Finance and Employment

Marco Pagano and Giovanni Pica

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: How does finance affect employment and inter-industry job reallocation? We present a model that predicts that financial development (i) increases employment and/or labor productivity and wages, with a smaller impact at high levels of the equilibrium wage and financial development; (ii) may induce either more or less reallocation of jobs depending on whether shocks to profit opportunities or to cash flow predominate; (iii) amplifies the output and employment losses in crises, firms that rely most on banks for liquidity being hit the hardest. Testing these predictions on international industry-level data for 1970-2003, we find that standard measures of financial development are indeed associated with greater employment growth, although only in non-OECD countries, and are not correlated with labor productivity or real wage growth. Moreover, they correlate negatively with inter-industry dispersion of employment growth. Finally, there is some evidence of a “dark side” of financial development, in that during banking crises employment grows less in the industries that are more dependent on external finance and those located in the more financially developed countries.

Keywords: financial development; employment; investment; access to finance (search for similar items in EconPapers)
JEL-codes: E24 G01 J20 O16 O40 (search for similar items in EconPapers)
Date: 2011-04-08
New Economics Papers: this item is included in nep-cfn, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Economic Policy, 2012, 27(69), 5–55

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Journal Article: Finance and employment* (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:283

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