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Equilibrium Unemployment and Credit Market Imperfections: The Critical Role of Labour Mobility

  • Erkki Koskela
  • Rune Stenbacka
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    We investigate the interaction between labour and credit market imperfections for the determination of equilibrium unemployment within the framework of the "right-tomanage" approach. Our analysis highlights the critical role of labour mobility for the evaluation of the employment implications of intensified credit market competition. Without labour mobility increased bargaining power of banks will have adverse employment effects. However, with a labour force mobile across industries this relationship is frequently reversed if firms adopt profit sharing schemes. If employment at a fixed wage complements unemployment benefits to constitute the trade union's relevant outside option, intensified credit market competition will increase equilibrium unemployment. This relationship is shown to hold also for cases where the outside option incorporates profit sharing schemes as long as the labour market imperfections – measured by the relative bargaining power of the trade unions - are sufficiently strong.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-01/654.PDF
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 654.

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    Date of creation: 2002
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    Handle: RePEc:ces:ceswps:_654
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    5. Zsolt Becsi & Victor Li & Ping Wang, 2000. "Financial Matchmakers in Credit Markets with Heterogeneous Borrowers," Vanderbilt University Department of Economics Working Papers 0032, Vanderbilt University Department of Economics.
    6. Michael Funke & Wolf Maurer & Holger Strulik, 1998. "Capital Structure and Labour Demand: Investigations Using German Micro Data," Quantitative Macroeconomics Working Papers 19801, Hamburg University, Department of Economics.
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    12. Jerger, Jurgen & Michaelis, Jochen, 1999. " Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-75, June.
    13. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
    14. Bronars, Stephen G & Deere, Donald R, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 231-54, February.
    15. Dasgupta, Sudipto & Sengupta, Kunal, 1993. "Sunk Investment, Bargaining and Choice of Capital Structure," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 203-20, February.
    16. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-41, December.
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    21. Koskela, Erkki & Stenbacka, Rune, 2000. "Agency Cost of Debt and Lending Market Competition: A Re-Examination," Research Discussion Papers 12/2000, Bank of Finland.
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