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Financial Shocks, Intangible Capital and the Cyclical Behavior of Unemployment

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  • Lopez, Jose Ignacio
  • Olivella, Virginia

Abstract

We study the effects of financial shocks on labor markets in a model with both labor and financial frictions, two types of productive capital, physical and intangible, and in which only the former serves as collateral. A tighter borrowing constraint in this environment leads to a fall in credit and investment, skewed in detriment of intangibles, which in its turn lowers the marginal product of labor and reduces the incentives to hire workers. When feeding into the model financial shocks estimated from the data, we find that they explain labor outcomes during the last three downturns in the US, including the sharp increase in unemployment during the great recession.

Suggested Citation

  • Lopez, Jose Ignacio & Olivella, Virginia, 2016. "Financial Shocks, Intangible Capital and the Cyclical Behavior of Unemployment," HEC Research Papers Series 1145, HEC Paris.
    • Handle: RePEc:ebg:heccah:1145
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    Keywords

    Financial Shocks; Intangible Assets; Business Cycles; Employment Volatility;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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