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On credit frictions as labor–income taxation

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  • Abo-Zaid, Salem

Abstract

This paper suggests that a model in which firms face credit constraints on hiring labor can explain both the behavior of the labor wedge and the “jobless recoveries” phenomenon of the last three recessions. Using the corporate credit spread as a measure of firms’ credit conditions, I show that the “jobless recoveries” of the U.S. economy from the last three recessions were associated with slow declines in the spread following those recessions. The credit conditions of firms, thus, were important in shaping the labor market recoveries of the last two decades.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 2 ()
Pages: 287-292

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:287-292

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Related research

Keywords: Jobless recoveries; Labor wedge; Credit spread; Credit frictions; Labor-income taxation;

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References

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  1. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  2. John Bailey Jones, 1999. "Has Fiscal Policy Helped Stabilize the Postwar U.S. Economy?," Discussion Papers 99-03, University at Albany, SUNY, Department of Economics.
  3. Timothy Fuerst & Matthias Paustian & Charles Carlstorm, 2009. "Optimal monetary policy in a model with agency costs," 2009 Meeting Papers 667, Society for Economic Dynamics.
  4. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  5. Lee E. Ohanian, 2010. "The Economic Crisis from a Neoclassical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 45-66, Fall.
  6. David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.
  7. Timothy S. Fuerst & Charles T. Carlstrom, 1998. "Agency costs and business cycles," Economic Theory, Springer, vol. 12(3), pages 583-597.
  8. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-97, January.
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Cited by:
  1. Abo-Zaid, Salem, 2012. "Optimal labor-income tax volatility with credit frictions," MPRA Paper 39083, University Library of Munich, Germany.

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