The Macroeconomics of Labor and Credit Market Imperfections

48 Pages Posted: 20 Nov 2000

See all articles by Etienne Wasmer

Etienne Wasmer

Observatoire Français des Conjonctures Economiques (OFCE); Sciences Po; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Philippe Weil

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2000

Abstract

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, a la Mortensen-Pissarides (1994), in the labor market.

Keywords: Credit and Search Frictions, Unemployment, Monetary Policy

JEL Classification: J64, G24, E51

Suggested Citation

Wasmer, Etienne and Weil, Philippe, The Macroeconomics of Labor and Credit Market Imperfections (August 2000). IZA Discussion Paper No. 179. Available at SSRN: https://ssrn.com/abstract=250123

Etienne Wasmer (Contact Author)

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75004
France

Sciences Po

56 rue Jacob
Paris Cedex 07, 75337
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Philippe Weil

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4220 (Phone)
+32 2 650 4475 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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