Financial shocks and endogenous labor market participation

This article studies the effects of financial shocks on the labor market when participation in the labor force is endogenous. Previous research concerning endogenous participation produced models that generated a counterfactually procyclical unemployment rate and a positively sloped Beveridge curve....

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Author Carnicelli, Lauro
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2018
Subjects
Economic models
Labor market
Unemployment
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Summary:This article studies the effects of financial shocks on the labor market when participation in the labor force is endogenous. Previous research concerning endogenous participation produced models that generated a counterfactually procyclical unemployment rate and a positively sloped Beveridge curve. This paper shows that collateral constraints alone are not able to produce correlations in line with the data. However, financial shocks, that change the collateral requirements, are responsible for most of the movements on the labor market and generate a countercyclical unemployment and a negatively slopped Beveridge curve.