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Equilibrium Unemployment with Credit and Labour Market Imperfections

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Author Info
Erkki Koskela ()
Rune Stenbacka
Abstract

We study the role of labour and credit market imperfections for the determination of equilibrium unemployment. In the credit market loan contracts are negotiated between financiers and firms, both possessing bargaining power, while the firms and organized labour bargain over the base wage. The sequential labour and credit market negotiations are assumed to take place conditional on the firm having committed itself to use performance-related profit sharing in addition to the negotiated base wage. It is shown that in the presence of profit sharing intensified credit market competition will raise equilibrium unemployment, because it induces wage-enhancing effects causing an increase in the outside option available to union members. Equilibrium unemployment is also an increasing function of firms' bankruptcy risks. It is, however, independent of the degree credit market imperfections if the compensation system is unrelated to firms' profits or if there is a monopoly union in the labour market.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 419.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_419

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Related research
Keywords: Wage and loan bargaining; compensation systems; equilibrium unemployment;

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Daron Acemoglu, 2000. "Credit Market Imperfections and Persistent Unemployment," NBER Working Papers 7938, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Haskel, Jonathan & Sanchis, Amparo, 1995. "Privatisation and X-Inefficiency: A Bargaining Approach," Journal of Industrial Economics, Blackwell Publishing, vol. 43(3), pages 301-21, September. [Downloadable!] (restricted)
    Other versions:
  3. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2001. "Economic Performance and Stabilization Policy in a Monetary Union with Imperfect Labour and Goods Markets," CEPR Discussion Papers 2745, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Funke, Michael & Maurer, Wolf & Strulik, Holger, 1999. " Capital Structure and Labour Demand: Investigations Using German Micro Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 199-215, May. [Downloadable!] (restricted)
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  5. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(2), pages 257-75, June. [Downloadable!] (restricted)
  6. Ricardo J. Caballero & Mohamad L. Hammour, 1998. "Improper Churn: Social Costs and Macroeconomic Consequences," NBER Working Papers 6717, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Weitzman, Martin L, 1987. "Steady State Unemployment under Profit Sharing," Economic Journal, Royal Economic Society, vol. 97(385), pages 86-105, March. [Downloadable!] (restricted)
  8. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
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  9. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  10. Weitzman, Martin L, 1985. "The Simple Macroeconomics of Profit Sharing," American Economic Review, American Economic Association, vol. 75(5), pages 937-53, December. [Downloadable!] (restricted)
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  11. Pissarides, Christopher A, 1999. "Policy Influences on Unemployment: The European Experience," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(4), pages 389-418, September. [Downloadable!] (restricted)
  12. Koskela, Erkki & Stenbacka, Rune, 2000. "Is there a tradeoff between bank competition and financial fragility?," Journal of Banking & Finance, Elsevier, vol. 24(12), pages 1853-1873, December. [Downloadable!] (restricted)
  13. repec:fth:bfdipa:12/2000 is not listed on IDEAS
  14. Koskela, Erkki & Stenbacka, Rune, 2000. "Agency Cost of Debt and Lending Market Competition: A Re-Examination," Research Discussion Papers 12/2000, Bank of Finland. [Downloadable!]
  15. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March. [Downloadable!] (restricted)
  16. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  17. Fabrizio Coricelli & Alex Cukierman & Alberto Dalmazzo, 2006. "Monetary Institutions, Monopolistic Competition, Unionized Labor Markets and Economic Performance," Scandinavian Journal of Economics, Blackwell Publishing, vol. 108(1), pages 39-63, 03. [Downloadable!] (restricted)
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  18. Hoon, Hian Teck, 2001. "General-Equilibrium Implications of International Product-Market Competition for Jobs and Wages," Oxford Economic Papers, Oxford University Press, vol. 53(1), pages 138-56, January.
  19. Simon P. Anderson & Michael Devereux, 1989. "Profit-Sharing and Optimal Labour Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 425-33, May. [Downloadable!] (restricted)
  20. Nickell, Stephen & Nicolitsas, Daphne, 1999. "How does financial pressure affect firms?," European Economic Review, Elsevier, vol. 43(8), pages 1435-1456, August. [Downloadable!] (restricted)
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  21. Dalmazzo, Alberto, 1996. " Debt and Wage Negotiations: A Bankruptcy-Based Approach," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(3), pages 351-64.
  22. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-41, December. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Antti Kauhanen & Hannu Piekkola, 2002. "Rent Sharing as Part of Incentive Payments and Recruitment," Discussion Papers 793, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Hannu Piekkola & Pertti Haaparanta, 1999. "Liquidity Constraints Faced by Firm and Employment," Discussion Papers 695, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Koskela, Erkki & Stenbacka, Rune, 2004. "Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment," IZA Discussion Papers 1020, Institute for the Study of Labor (IZA). [Downloadable!]
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