Job creation under liquidity constraints: The Spanish case
This paper shows that liquidity constraints restrict job creation even when labor markets are flexible. In a dynamic model of labor demand, I show that in an environment of imperfect capital and imperfect labor markets, firms use temporary contracts to relax financial constraints. Evidence for the predictions of the model is presented using Spanish data from the CBBE (Central de Balances del Banco de España - Balance Sheet data from the Bank of Spain). It is shown that firms substitute temporary labor for permanent one and use less debt as their financial position improves. In particular, it is rejected that Spanish firms operate in an environment of free capital markets and of no labor adjustment costs. The labor reform of 1984, which created temporary contracts, implied to some extent a relaxation of liquidity constraints. Accordingly, firms used these contracts more extensively and used less debt; however, as capital markets continue to be imperfect, permanent job creation continues to be slow. Consequently, relaxation of liquidity constraints should also be part of a job creation strategy.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1984.
"Informational Imperfections in the Capital Market and Macro-Economic Fluctuations,"
NBER Working Papers
1335, National Bureau of Economic Research, Inc.
- Greenwald, Bruce & Stiglitz, Joseph E & Weiss, Andrew, 1984. "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 74(2), pages 194-99, May.
- Alonso-Borrego, César & Aguirregabiria, Víctor, 1999.
"Labor contracts and flexibility : evidence from a labor markt reform in Spain,"
DES - Working Papers. Statistics and Econometrics. WS
6302, Universidad Carlos III de Madrid. Departamento de Estadística.
- Victor Aguirregabiria & Cesar Alonso-Borrego, 2014. "Labor Contracts And Flexibility: Evidence From A Labor Market Reform In Spain," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 930-957, 04.
- Alonso-Borrego, César & Aguirregabiria, Víctor, 2009. "Labor contracts and flexibility : evidence from a labor market reform in Spain," UC3M Working papers. Economics we091811, Universidad Carlos III de Madrid. Departamento de Economía.
- Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor Contracts and Flexibility: Evidence from a Labor Market Reform in Spain," Working Papers tecipa-346, University of Toronto, Department of Economics.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Tribó, Josep A. & Hernando, Ignacio, 1999. "Relación entre contratos laborales y financieros: un estudio teórico y empírico para el caso español," DEE - Documentos de Trabajo. Economía de la Empresa. DB 6389, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
- Sangeeta Pratap & Silvio Rendon, 2003.
"Firm Investment in Imperfect Capital Markets: A Structural Estimation,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 513-545, July.
- Sangeeta Pratap & Silvio Rendón, 1996. "Firm investment in imperfect capital markets: A structural estimation," Economics Working Papers 274, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1998.
- Caballero, Ricardo J., 1999.
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862
- Alonso-Borrego, Cesar & Bentolila, Samuel, 1994. "Investment and Q in Spanish Manufacturing Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(1), pages 49-65, February.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:488. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.