The Macroeconomics of Labor and Credit Market Imperfections

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in The Macroeconomics of Labor and Credit Market ImperfectionsEtienne Wasmer Philippe Weil The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. Labor market frictions are not the only possible factor responsible for high unemployment. Credit market imperfections, driven by microeconomic frictions and impacted upon by macroeconomic factors such as monetary policy, could also be to blame. This paper shows that labor and credit market imperfections interact in a complementary way -which may explain why European and US unemployment differ so much when labor markets have become more similar at the margin in Europe and the US.To develop this idea, we build a search model that treats credit and labor market imperfections in a symmetrical way. We introduce specificity in credit relationships, and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions, in the spirit of Diamond (1990). These imperfections mirror the job search frictions that we introduce, à la MortensenPissarides (1994), in the labor market.JEL Classification: J64, G24, E51

Gross Loan Flows

“…Let B denote the measure of banks searching for firms (the others are already lending to firms) and let F denote the measure of firms searching for banks. Then φ(t) ≡ F (t)/B(t) defines the F-B ratio at time t, which Wasmer and Weil (2004) call an index of "credit market tightness." Assuming a constant returns to scale matching technology…”

“…Furthermore, as in the labor literature, concentrating on gross flows cuts the data in a manner more appropriate for models that emphasize search frictions in the banking market, such as Wasmer and Weil (2004), den Haan, Ramey, and Watson (2003), Dell'Ariccia and Garibaldi (1998), or other models that exploit bank and borrower heterogeneity, such as Monge-Naranjo (2001) or Gorton and He (2005).…”

Credit Search and Credit Cycles

“…First, the search friction is in line with approaches proposed by Den Haan, Ramey and Waston (2003), Wasmer and Weil (2004), and Petrosky-Nadeau and Wasmer (2013). These researchers have explored the implication of credit search on macroeconomy, but does not study the possibility of indeterminacy.…”

Aggregate Recruiting Intensity

“…In choosing the recruiting cost function, we reverse-engineer a specification that allows the model to replicate DFH's empirical relation between the job-filling rate and the hiring rate at the establishment level from the JOLTS microdata. Our parameteri- 3 Other papers that consider various forms of financial constraints in frictional labor market models include Wasmer and Weil (2004), Petrosky-Nadeau and Wasmer (2013), Eckstein, Setty, and Weiss (2014), and Buera, Jaef, and Shin (2015), though none of these models displays endogenous fluctuations in match efficiency. An exception is Mehrotra and Sergeyev (2013), where a financial shock has a differential impact across industries and induces sectoral mismatch between jobseekers and vacancies.…”