Unemployment and Finance: How Do Financial and Labour Market Factors Interact?

29 Pages Posted: 30 Mar 2009

See all articles by Donatella Gatti

Donatella Gatti

Paris School of Economics (PSE); PSE; IZA Institute of Labor Economics

Anne-Gael Vaubourg

University of Orleans

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Abstract

Using data for 18 OECD countries over the period 1980-2004, we investigate how labour and financial factors interact to determine unemployment. We show that the impact of financial variables depends strongly on the labour market context. Increased market capitalization as well as decreased banking concentration reduce unemployment if the level of labour market regulation, union density and coordination in wage bargaining is low. The above financial variables have no effect otherwise. Increasing intermediated credit worsens unemployment when the labour market is weakly regulated and coordinated, whereas it reduces unemployment otherwise. These results suggest that the respective virtues of bank-based and market-based finance are crucially tied to the strength of labour regulation.

Keywords: unemployment, institutional complementarities and substitutabilities, labour market, financial system

JEL Classification: E24, J23, P17

Suggested Citation

Gatti, Donatella and Gatti, Donatella and Vaubourg, Anne-Gael, Unemployment and Finance: How Do Financial and Labour Market Factors Interact?. IZA Discussion Paper No. 4075, Available at SSRN: https://ssrn.com/abstract=1369821 or http://dx.doi.org/10.2139/ssrn.1369821

Donatella Gatti (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

PSE ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

IZA Institute of Labor Economics

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

Anne-Gael Vaubourg

University of Orleans ( email )

Université d'Orléans,
Rue de Blois, B.P. 6739, 45
France