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Credit Frictions and Labor Market Dynamics

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  • Atanas Hristov

Abstract

We outline the case for credit frictions and a demand side aspect to labor market fluctuations. To illustrate the above proposition, we present a simple framework to analyze the joint dependence between a labor search problem in the labor market and a costly state verification problem in the credit market in the presence of price rigidities. Credit market imperfections amplify volatility of labor market variables to both supply and demand shocks, but to a much higher extent to demand shocks under rigid prices. The reason is that demand disturbances provide for a strong incentive to demand-constrained firms to adjust production and thereby labor factor.

Suggested Citation

  • Atanas Hristov, 2009. "Credit Frictions and Labor Market Dynamics," Working Paper / FINESS 7.3, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwfin:diwfin7.3
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    References listed on IDEAS

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    Cited by:

    1. Nicola Acocella & Laura Bisio & Giovanni Di Bartolomeo & Alessandra Pelloni, "undated". "Labor market imperfections, real wage rigidities and financial shocks," Working Papers 80/11, Sapienza University of Rome, Metodi e Modelli per l'Economia, il Territorio e la Finanza MEMOTEF.
    2. 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.
    3. Jose Ignacio García Pérez & Victoria Osuna, 2011. "The effects of introducing a single open-ended contract in the Spanish labour market," Working Papers 11.07, Universidad Pablo de Olavide, Department of Economics.
    4. Pavía, Jose M. & Veres-Ferrer, Ernesto J. & Foix-Escura, Gabriel, 2012. "Credit card incidents and control systems," International Journal of Information Management, Elsevier, vol. 32(6), pages 501-503.

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    More about this item

    Keywords

    Credit and search frictions; unemployment; monetary policy;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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