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Labour Market Adjustments to Financing Conditions under Sectoral Rigidities in the Euro Area

Author

Listed:
  • Arno Hantzsche

    (National Institute of Economic and Social Research)

  • Simon Savsek

    (European Investment Bank)

  • Sebastian Weber

    (International Monetary Fund)

Abstract

This paper analyses empirically the response of labour market indicators to changing financing conditions in a panel of 15 euro area countries from 1999Q1 to 2015Q4. Using a local projections approach, we estimate impulse responses of three margins of sectoral labour market adjustment – employment, hours worked and real wages. Consistent with recent results in the literature, we find contractionary financing shocks to depress all three indicators of the labour market. Furthermore, responses are asymmetric depending on the sign of the shock, different in magnitude depending on the sectoral composition, and sensitive to labour market institutions such as employment protection legislation and union density. Finally, labour market institutions seem to mainly affect the relative strength of the adjustment margins and not so much the overall response of the wage bill.

Suggested Citation

  • Arno Hantzsche & Simon Savsek & Sebastian Weber, 2018. "Labour Market Adjustments to Financing Conditions under Sectoral Rigidities in the Euro Area," Open Economies Review, Springer, vol. 29(4), pages 769-794, September.
    • Handle: RePEc:kap:openec:v:29:y:2018:i:4:d:10.1007_s11079-018-9485-0
    DOI: 10.1007/s11079-018-9485-0
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    Cited by:

    1. Jan-Luca Hennig, 2020. "Can labor market institutions mitigate the China syndrome? Evidence from regional labor markets in Europe," Trinity Economics Papers tep1420, Trinity College Dublin, Department of Economics.
    2. Jan‐luca Hennig, 2023. "Can labour market institutions mitigate the China syndrome? Evidence from regional labour markets in Europe," Post-Print hal-03856251, HAL.
    3. Jan‐Luca Hennig, 2023. "Can labour market institutions mitigate the China syndrome? Evidence from regional labour markets in Europe," The World Economy, Wiley Blackwell, vol. 46(1), pages 55-84, January.
    4. António Afonso & M. Carmen Blanco-Arana, 2021. "Unemployment and financial development: evidence for OECD countries," Working Papers REM 2021/0204, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Gravina, Antonio Francesco & Foster-McGregor, Neil, 2020. "Automation, globalisation and relative wages: An empirical analysis of winners and losers," MERIT Working Papers 2020-040, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Nauro Campos & Karim Aynaoui & Davide Furceri & Prakash Loungani, 2018. "Slow Recovery to Nowhere? Labor Market Issues in Advanced Economies: Introduction," Open Economies Review, Springer, vol. 29(4), pages 695-701, September.
    7. Savšek, Simon, 2018. "What are the main obstacles to hiring after recessions in Europe?," Working Paper Series 2153, European Central Bank.

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    More about this item

    Keywords

    Labour market institutions; Employment; Wages; Sectoral adjustment; Financing conditions; Local projections method;
    All these keywords.

    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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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