Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/149335 
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper No. 6248
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper studies the unemployment accelerator, a mechanism where workers directly affect the firms’ financial conditions, and, in turn, firms’ financial conditions feedback again to the real economy. The unemployment accelerator builds on two key assumptions: search frictions in the labor market and firms’ default risk. The former assumption implies a positive relation between the firm’s value and its number of workers; the latter assumption entails a tight connection between the value of the workers and the firm’s incentives to default. We develop and estimate a model with these two frictions together with firm-level heterogeneity; and show the model matches firm-level statistics as well as business cycle fluctuations in labor and financial markets. We provide compelling micro-evidence of the unemployment accelerator: a 10% increase in a firm’s number of workers is associated with a 4% increase in its market value and a 6% decline in its probability of default. We show that our model can account for these facts, and that the two key assumptions we make are essential for this.
Subjects: 
unemployment
default risk
credit market frictions
search frictions
wage bargaining
JEL: 
E24
E32
E44
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.