Unemployment and Finance: How Do Financial and Labour Market Factors Interact?
29 Pages Posted: 30 Mar 2009
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Unemployment and Finance: How Do Financial and Labour Market Factors Interact?
Unemployment and Finance: How Do Financial and Labour Market Factors Interact?
Unemployment and Finance: How do Financial and Labour Market Factors Interact?
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: Suggested Citation
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