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Unemployment and Finance: How do Financial and Labour Market Factors Interact?

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  • Donatella Gatti
  • Christophe Rault
  • Anne-Gael Vaubourg

Abstract

Using annual data for 18 OECD countries over the period 1980-2004, we investigate how labour and financial factors interact to determine unemployment by estimating a dynamic panel model using the system generalized method of moments (GMM). We show that the impact of financial variables depends strongly on the labour market context. Increased market capitalization as well as decreased banking concentration reduce unemployment if the level of labour market regulation, union density and coordination in wage bargaining is low. The above financial variables have no effect otherwise. Increasing intermediated credit and banking concentration is beneficial for employment when the degree of labour market regulation, union density and coordination in wage bargaining is high. These results suggest that the respective virtues of ed and market-based finance are crucially tied to the labour market context.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2901.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2901

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Keywords: unemployment; institutional complementarities and substituabilities; labour market; financial system;

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Citations

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Cited by:
  1. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2012. "The Labor Market Consequences of Adverse Financial Shocks," IZA Discussion Papers 6826, Institute for the Study of Labor (IZA).
  2. Ekrame BOUBTANE & Dramane COULIBALY & C. Rault, 2013. "Immigration, growth and unemployment: Panel VAR evidence from OECD countries," Working Papers halshs-00827002, HAL.
  3. Dromel, Nicolas L. & Kolakez, Elie & Lehmann, Etienne, 2010. "Credit constraints and the persistence of unemployment," Labour Economics, Elsevier, vol. 17(5), pages 823-834, October.
  4. Nicolas Dromel & Elie Kolakez & Etienne Lehmann, 2009. "Credit Constraints and the Persistence of Unemployment," Post-Print halshs-00389762, HAL.
  5. Thibault Darcillon, 2011. "Political Partisanship and Financial Reforms in Advanced Countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00639840, HAL.
  6. Donatella Gatti & Anne-Gael Vaubourg, 2010. "Credit and Unemployment: Do Institutions Matter?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 11(1), pages 37-43, 04.
  7. repec:hal:journl:halshs-00639840 is not listed on IDEAS
  8. Thibault Darcillon, 2012. "Do Interactions between Finance and Labor Market Institutions Affect Wage Distribution?," Documents de travail du Centre d'Economie de la Sorbonne 12089, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  9. Thibault Darcillon, 2011. "Political Partisanship and Financial Reforms in Advanced Countries," Documents de travail du Centre d'Economie de la Sorbonne 11063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  10. C. Giannetti & M. Madia & L. Moretti, 2013. "Job Insecurity and Financial Distress," Working Papers wp887, Dipartimento Scienze Economiche, Universita' di Bologna.
  11. Thibault Darcillon, 2012. "Do Interactions between Finance and Labor Market Institutions Affect Wage Distribution ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00768908, HAL.
  12. Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers 11-057, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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