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The effect of financial fragility on employment

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  • Chletsos, Michael
  • Sintos, Andreas

Abstract

Financial fragility increases economic uncertainty and restricts credit to firms, leading to lower economic growth and employment. Despite voluminous research on the relation between financial fragility and growth, the effect of financial fragility on employment is understudied. Using a global panel for the period 1998–2017, we identify a negative effect of financial fragility on employment, even after accounting for unobserved country heterogeneity. The impact of financial fragility is stronger in the post-crisis period and in more rigid labor markets, and the magnitude of the effect is higher in developing/emerging economies than in developed countries. Nevertheless, this negative effect can be mitigated in countries with a higher level of financial market development. Our results are robust to the use of several robustness tests, including different measures of financial fragility and an instrumental variables approach.

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  • Chletsos, Michael & Sintos, Andreas, 2021. "The effect of financial fragility on employment," Economic Modelling, Elsevier, vol. 94(C), pages 104-120.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:104-120
    DOI: 10.1016/j.econmod.2020.09.017
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    More about this item

    Keywords

    Financial fragility; Employment; Panel data models;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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