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

38 Pages Posted: 16 Jan 2010

See all articles by Donatella Gatti

Donatella Gatti

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

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

Anne-Gael Vaubourg

University of Orleans

Multiple version iconThere are 3 versions of this paper

Date Written: December 2009

Abstract

Using annual data for 18 OECD countries over the period 1980-2004, we investigate how labour and financial factors interact to determine unemployment by estimating a dynamic panel model using the system generalized method of moments (GMM). 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 and banking concentration is beneficial for employment when the degree of labour market regulation, union density and coordination in wage bargaining is high. These results suggest that the respective virtues of ed and market-based finance are crucially tied to the labour market context.

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

JEL Classification: E24, J23, P17

Suggested Citation

Gatti, Donatella and Gatti, Donatella and Rault, Christophe and Rault, Christophe and Vaubourg, Anne-Gael, Unemployment and Finance: How Do Financial and Labour Market Factors Interact? (December 2009). CESifo Working Paper Series No. 2901, Available at SSRN: https://ssrn.com/abstract=1536452 or http://dx.doi.org/10.2139/ssrn.1536452

Donatella Gatti

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

Christophe Rault (Contact Author)

University of Orleans ( email )

Rue de Blois
BP 6739
LEO, Orleans, Orleans cedex 2 45067
France

IZA Institute of Labor Economics

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Anne-Gael Vaubourg

University of Orleans ( email )

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

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