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Financial markets and unemployment

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  • Monacelli, Tommaso
  • Quadrini, Vincenzo
  • Trigari, Antonella

Abstract

We study the importance of financial markets for (un)employment fluctuations in a model with matching frictions where firms borrow under limited enforcement. Borrowing affects employment through a ‘debt bargaining channel’: higher debt improves the bargaining position of employers with workers and increases the incentive to hire. We estimate the model structurally and find that the debt bargaining channel accounts for 26 percent of unemployment fluctuations. We find empirical support for the channel at the micro level using firm level data from Compustat.

Suggested Citation

  • Monacelli, Tommaso & Quadrini, Vincenzo & Trigari, Antonella, 2023. "Financial markets and unemployment," Journal of Financial Economics, Elsevier, vol. 147(3), pages 596-626.
    • Handle: RePEc:eee:jfinec:v:147:y:2023:i:3:p:596-626
    DOI: 10.1016/j.jfineco.2023.01.001
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    More about this item

    Keywords

    Debt; Wage bargaining; Unemployment;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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