Financial Shocks, Intangible Capital and the Cyclical Behavior of Unemployment

33 Pages Posted: 9 May 2016 Last revised: 6 Jun 2016

See all articles by Jose Ignacio Lopez

Jose Ignacio Lopez

Universidad de los Andes, Colombia - Department of Economics

Virginia Olivella

Banque de France

Date Written: March 8, 2016

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.

Keywords: Financial Shocks, Intangible Assets, Business Cycles, Employment Volatility

JEL Classification: E24, E32, E44

Suggested Citation

Lopez, Jose Ignacio and Olivella, Virginia, Financial Shocks, Intangible Capital and the Cyclical Behavior of Unemployment (March 8, 2016). HEC Paris Research Paper No. ECO/SCD-2016-1145, Available at SSRN: https://ssrn.com/abstract=2777526 or http://dx.doi.org/10.2139/ssrn.2777526

Jose Ignacio Lopez (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
5713394949 (Phone)

HOME PAGE: http://joseignaciolopez..com

Virginia Olivella

Banque de France ( email )

Paris
France

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