Unemployment and Finance: How Do Financial and Labour Market Factors Interact?
38 Pages Posted: 16 Jan 2010
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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?
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: Suggested Citation
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