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Unemployment and finance: how do financial and labour market factors interact?

Author

Listed:
  • Donatella Gatti

    (PSE - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, CEPREMAP - Centre pour la recherche économique et ses applications, IZA - Institute for the Study of Labor - IZA)

  • Christophe Rault

    (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique, Toulouse Business School - Toulouse Business School)

  • Anne-Gaël Vaubourg

    () (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

Using annual data for 18 OECD countries over the period 1980-2004, we investigate how labour and financial factors interact to determine unemployment. We estimate a dynamic panel model using the system Generalized Method of Moments (GMM). It is shown that the impact of financial variables depends strongly on the labour market context. Increased market capitalization as well as decreased banking concentration reduce unemployment if the level of labour market regulation, union density, and coordination in wage bargaining is low. Increasing intermediated credit and banking concentration is beneficial for employment when the degree of labour market regulation, union density, and wage coordination is high. These results suggest that the respective virtues of intermediated and market-based finance are crucially tied to the labour market context.

Suggested Citation

  • Donatella Gatti & Christophe Rault & Anne-Gaël Vaubourg, 2012. "Unemployment and finance: how do financial and labour market factors interact?," Post-Print halshs-00846633, HAL.
  • Handle: RePEc:hal:journl:halshs-00846633
    DOI: 10.1093/oep/gpr046
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00846633
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    Cited by:

    1. Ekrame Boubtane & Dramane Coulibaly & Christophe Rault, 2013. "Immigration, Growth, and Unemployment: Panel VAR Evidence from OECD Countries," LABOUR, CEIS, vol. 27(4), pages 399-420, December.
    2. Caterina Giannetti & Marianna Madia & Luigi Moretti, 2014. "Job insecurity and financial distress," Applied Financial Economics, Taylor & Francis Journals, vol. 24(4), pages 219-233, February.
    3. Thibault Darcillon, 2012. "Do Interactions between Finance and Labor Market Institutions Affect Wage Distribution?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00768908, HAL.
    4. Girdėnas, Šarūnas, 2018. "A Note On Simple Monetary Policy Rules With Labor Market And Financial Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 22(05), pages 1321-1344, July.
    5. Rault, Christophe & Vaubourg, Anne-Gaël, 2011. "Labour Market Institutions and Unemployment: Does Finance Matter?," IZA Discussion Papers 5606, Institute for the Study of Labor (IZA).
    6. Giorgia Piacentino & Anjan Thakor & Jason Donaldson, 2015. "Bank Capital, Bank Credit and Unemployment," 2015 Meeting Papers 1403, Society for Economic Dynamics.
    7. Donatella Gatti & Anne-Gael Vaubourg, 2010. "Credit and Unemployment: Do Institutions Matter?," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(1), pages 37-43, April.
    8. Dromel, Nicolas L. & Kolakez, Elie & Lehmann, Etienne, 2010. "Credit constraints and the persistence of unemployment," Labour Economics, Elsevier, vol. 17(5), pages 823-834, October.
    9. Thibault Darcillon, 2011. "Political Partisanship and Financial Reforms in Advanced Countries," Documents de travail du Centre d'Economie de la Sorbonne 11063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    10. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, April.
    11. Mihály Tamás Borsi, 2016. "Credit contractions and unemployment," Working Papers 1617, Banco de España;Working Papers Homepage.
    12. repec:hal:journl:halshs-00639840 is not listed on IDEAS
    13. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2012. "The Labor Market Consequences of Adverse Financial Shocks," IZA Discussion Papers 6826, Institute for the Study of Labor (IZA).
    14. Thibault Darcillon, 2016. "Do Interactions between Finance and Labour Market Institutions Affect the Income Distribution?," LABOUR, CEIS, vol. 30(3), pages 235-257, September.
    15. Jean-Paul POLLIN, 2010. "l eurosystème et l'intégration financière européenne," LEO Working Papers / DR LEO 832, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    16. repec:hal:journl:halshs-00768908 is not listed on IDEAS
    17. Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers 11-057, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    18. Pietro Garibaldi, 2013. "Labor and Finance: Mortensen and Pissarides meet Holmstrom and Tirole," 2013 Meeting Papers 775, Society for Economic Dynamics.
    19. repec:hal:journl:halshs-00389762 is not listed on IDEAS

    More about this item

    Keywords

    Unemployment; Labour market factors;

    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
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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