Job creation under liquidity constraints: The Spanish case
Abstract
This paper shows that liquidity constraints restrict job creation even when labor markets are flexible. In a dynamic model of labor demand, I show that in an environment of imperfect capital and imperfect labor markets, firms use temporary contracts to relax financial constraints. Evidence for the predictions of the model is presented using Spanish data from the CBBE (Central de Balances del Banco de España - Balance Sheet data from the Bank of Spain). It is shown that firms substitute temporary labor for permanent one and use less debt as their financial position improves. In particular, it is rejected that Spanish firms operate in an environment of free capital markets and of no labor adjustment costs. The labor reform of 1984, which created temporary contracts, implied to some extent a relaxation of liquidity constraints. Accordingly, firms used these contracts more extensively and used less debt; however, as capital markets continue to be imperfect, permanent job creation continues to be slow. Consequently, relaxation of liquidity constraints should also be part of a job creation strategy.Download Info
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 488.Length:
Date of creation: Jul 2000
Date of revision:
Handle: RePEc:upf:upfgen:488
Contact details of provider:
Web page: http://www.econ.upf.edu/
Related research
Keywords: Job creation; employment; investment; adjustment costs; liquidity constraints;Other versions of this item:
- Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de España Working Papers 0101, Banco de España.
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-07-27 (All new papers)
- NEP-DGE-2000-07-27 (Dynamic General Equilibrium)
- NEP-LAB-2000-07-27 (Labour Economics)
References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- José Ignacio García Pérez & Yolanda Rebollo Sanz, 2005.
"A Structural Estimation to Evaluate the Wage Penalty after Unemployment in Europe,"
Economic Working Papers at Centro de Estudios Andaluces
E2005/15, Centro de Estudios Andaluces.
- Yolanda Rebollo Sanz & José Ignacio García-Pérez, 2006. "A Structural Estimation to Evaluate the Wage Penalty After Unemployment in Europe," Working Papers 06.26, Universidad Pablo de Olavide, Department of Economics.
- Raquel FONSECA & Natalia UTRERO- GONZALEZ, 2005.
"Financial Development, Labor and Market Regulations and Growth,"
Finance
0509016, EconWPA.
- Raquel Fonseca & Natalia Utrero-González, 2005. "Financial Development, Labor and Market Regulations and Growth," Working Paper 200503, Department of Business Economics, Universitat Autonoma de Barcelona.
- Donatella Gatti & Anne-Gaël Vaubourg, 2009. "Unemployment and finance: how do financial and labour market factors interact?," Working Papers halshs-00566792, HAL.
- Josep Tribo, 2005.
"An analysis of the length of labour and financial contracts: a study for Spain,"
Applied Economics,
Taylor and Francis Journals, vol. 37(8), pages 905-916.
- Tribó, Josep A., 2005. "An analysis of the length of labour and financial contracts: a study for Spain," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/9578, Universidad Carlos III de Madrid.
- Gatti, Donatella & Vaubourg, Anne-Gaël, 2009.
"Unemployment and Finance: How Do Financial and Labour Market Factors Interact?,"
IZA Discussion Papers
4075, Institute for the Study of Labor (IZA).
- Donatella Gatti & Christophe Rault & Anne-Gael Vaubourg, 2012. "Unemployment and finance: how do financial and labour market factors interact?," Oxford Economic Papers, Oxford University Press, vol. 64(3), pages 464-489, July.
- Donatella Gatti & Christophe Rault & Anne-Gael Vaubourg, 2009. "Unemployment and Finance: How do Financial and Labour Market Factors Interact?," CESifo Working Paper Series 2901, CESifo Group Munich.
- Donatella Gatti & Anne-Gaël Vaubourg, 2009. "Unemployment and finance: how do financial and labour market factors interact?," CEPN Working Papers halshs-00566792, HAL.
- Donatella Gatti & Christophe Rault & Anne-Gael Vaubourg, 2010. "Unemployment and finance: how do financial and labour market factors interact?," William Davidson Institute Working Papers Series wp973, William Davidson Institute at the University of Michigan.
- Raquel Fonseca & Natalia Utrero González, 2004. "Do Market Regulation and Financial Imperfections Affect Firm Size? New Empirical Evidence," CSEF Working Papers 119, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- repec:hal:psewpa:halshs-00566792 is not listed on IDEAS
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