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Credit constraints and the persistence of unemployment

Author Info

Listed author(s):
  • Dromel, Nicolas L.
  • Kolakez, Elie
  • Lehmann, Etienne

Abstract

In this paper, we argue that credit market imperfections impact not only the level of unemployment, but also its persistence. For this purpose, we first develop a theoretical model based on the equilibrium matching framework of Mortensen and Pissarides (1999) and Pissarides (2000) where we introduce credit constraints. We show these credit constraints not only increase steady-state unemployment, but also slow down the transitional dynamics. We then provide an empirical illustration based on a country panel dataset of 20 OECD countries. Our results suggest that credit market imperfections significantly increase the persistence of unemployment.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927-5371(10)00037-0
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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 5 (October)
Pages: 823-834

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Handle: RePEc:eee:labeco:v:17:y:2010:i:5:p:823-834
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

Keywords: Credit markets Labour markets Unemployment Credit constraints Search frictions;

Other versions of this item:

Find related papers by JEL classification:
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
  • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

References listed on IDEAS
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  1. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Credit Constraints and the Persistence of Unemployment
    by Christian Zimmermann in NEP-DGE blog on 2009-11-17 02:30:42
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