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Financial Crises and Labor Market Turbulence

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  • Erwan Quintin

    (Federal Reserve Bank of Dallas)

  • Sangeeta Pratap

    (Hunter College and Graduate Center, CUNY)

Abstract

Financial crises cause significant reallocation of labor across sectors and occupations. This results in transitory losses in the quality of labor as specific human capital is destroyed and workers devote time to learning new skills, among other possible transition costs. In other words, crises are periods of high turbulence in the sense of Ljunqvist and Sargent (1998). In this paper, we provide strong evidence that these losses were substantial in the case of Mexico's 1994-95 crisis. Workers that changed occupations or sectors during the crisis lost more than 10% in wages, compared to those who did not. We show that these losses in productivity can account for a significant part of the drop in conventionally-measured TFP that took place during the crisis.

Suggested Citation

  • Erwan Quintin & Sangeeta Pratap, 2009. "Financial Crises and Labor Market Turbulence," 2009 Meeting Papers 744, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:744
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    Cited by:

    1. Blanton, Robert G. & Blanton, Shannon Lindsey & Peksen, Dursun, 2015. "Financial Crises and Labor: Does Tight Money Loosen Labor Rights?," World Development, Elsevier, vol. 76(C), pages 1-12.
    2. Meza, Felipe & Urrutia, Carlos, 2011. "Financial liberalization, structural change, and real exchange rate appreciations," Journal of International Economics, Elsevier, vol. 85(2), pages 317-328.
    3. Ruy Lama & Carlos Urrutia, 2011. "Employment Protection and Business Cycles in Emerging Economies," Working Papers 1105, Centro de Investigacion Economica, ITAM.
    4. Boeri, Tito & Jimeno, Juan F., 2016. "Learning from the Great Divergence in unemployment in Europe during the crisis," Labour Economics, Elsevier, vol. 41(C), pages 32-46.
    5. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R, 2015. "Financial Frictions, Financial Shocks and Unemployment Volatility," CEPR Discussion Papers 10648, C.E.P.R. Discussion Papers.
    6. Sangeeta Pratap & Carlos Urrutia, 2012. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 336-358, July.
    7. repec:eee:ecmode:v:64:y:2017:i:c:p:141-152 is not listed on IDEAS
    8. Tavares, Tiago, 2015. "Labor Market Distortions under Sovereign Default Crises," MPRA Paper 66964, University Library of Munich, Germany.
    9. Sheida Teimouri, 2015. "Currency crises and dynamics of real wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(2), pages 377-403, May.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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