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The Financial Channels of Labor Rigidities: Evidence from Portugal

Author

Listed:
  • Edoardo M. Acabbi

  • Ettore Panetti

  • Alessandro Sforza

Abstract

How do credit shocks affect labor market reallocation and firms' exit, and how does their propagation depend on labor rigidities at the firm level? To answer these questions, we match administrative data on worker, firms, banks and credit relationships in Portugal, and conduct an event study of the interbank market freeze at the end of 2008. Consistent with other empirical literature, we provide novel evidence that the credit shock had significant effects on employment dynamics and firms' survival. These findings are entirely driven by the interaction of the credit shock with labor market frictions, determined by rigidities in labor costs and exposure to working-capital financing, which we label ``labor-as-leverage'' and ``labor-as-investment'' financial channels. The credit shock explains about 29 percent of the employment loss among large Portuguese firms between 2008 and 2013, and contributes to productivity losses due to increased labor misallocation.

Suggested Citation

  • Edoardo M. Acabbi & Ettore Panetti & Alessandro Sforza, 2019. "The Financial Channels of Labor Rigidities: Evidence from Portugal," GEE Papers 0138, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2019.
    • Handle: RePEc:mde:wpaper:0138
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    File URL: https://www.gee.gov.pt//RePEc/WorkingPapers/GEE_PAPERS_138.pdf
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    Cited by:

    1. Effrosyni Adamopoulou & Marta De Philippis & Enrico Sette & Eliana Viviano, 2020. "The Long Run Earnings Effects of a Credit Market Disruption," CRC TR 224 Discussion Paper Series crctr224_2020_169v3, University of Bonn and University of Mannheim, Germany.
    2. Bertheau, Antoine & Acabbi, Edoardo & Barcelo, Cristina & Gulyas, Andreas & Lombardi, Stefano & Saggio, Raffaele, 2022. "The Unequal Cost of Job Loss across Countries," IZA Discussion Papers 15033, Institute of Labor Economics (IZA).
    3. repec:ptu:bdpart:e202102 is not listed on IDEAS
    4. Moser, Christian & Saidi, Farzad & Wirth, Benjamin & Wolter, Stefanie, 2020. "Credit Supply, Firms, and Earnings Inequality," MPRA Paper 100371, University Library of Munich, Germany.
    5. Omar Barbiero, 2021. "The Valuation Effects of Trade," Working Papers 21-11, Federal Reserve Bank of Boston.
    6. Adrien Matray & Charles Boissel, 2020. "Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France," Working Papers 276, Princeton University, Department of Economics, Center for Economic Policy Studies..

    More about this item

    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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