Job creation under liquidity constraints: The Spanish case
AbstractThis 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.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 488.
Date of creation: Jul 2000
Date of revision:
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Web page: http://www.econ.upf.edu/
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 Espaï¿½a Working Papers 0101, Banco de Espa�a.
- 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; Retirement Plans; Private Pensions
- E22 - Macroeconomics and Monetary Economics - - 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)
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