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Financial shocks, wage-setting and employment

Author

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  • Jaakko Kiander

    (Yrjö Jahnsson Foundation)

Abstract

The paper investigates the employment effects of changes in interest rate, availability of credit, internal net worth, market power and debt-equity ratio. A model of an oligopolistic risk averse firm is used as an analytical framework, combined with a Nash bargain over wage. The analysis suggests that employment is highly sensitive to changes in financial factors, and that this sensitivity increases with indebtedness. The main reasons for the result are the assumptions of (1) the decisive role of investment in employment determination in long run and (2) credit rationing. The result emphasizes the importance of monetary policy when aggregate employment is concerned.

Suggested Citation

  • Jaakko Kiander, 1993. "Financial shocks, wage-setting and employment," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 41-49, Spring.
    • Handle: RePEc:fep:journl:v:6:y:1993:i:1:p:41-49
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    References listed on IDEAS

    as
    1. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    2. Narendranathan, W & Stewart, Mark B, 1993. "How Does the Benefit Effect Vary as Unemployment Spells Lengthen?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 361-381, Oct.-Dec..
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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

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