Arbeitspapier

The high sensitivity of employment to agency costs: The relevance of wage rigidity

This paper studies the interaction of financing constraints and labor market imperfections on the labor market and economic activity. My analysis builds on the agency cost framework of Carlstrom and Fuerst [1998. Agency costs and business cycles. Economic Theory, 12(3):583-597]. The aim of this article is to show that financing constraints can substantially amplify and propagate total factor productivity shocks in cyclical labor market dynamics. I find that under the Nash bargaining solution financing constraints increase substantially the volatility of wages, and in turn, amplification for the labor variables falls short of the observed volatilities in the data. Atop of this, the comovement between output and labor share is counterfactual. However, there is substantial scope for any type of wage rigidity and financing constraints to reinforce each other, and to generate the observed volatilities in the labor market, moreover, to produce a wide range of comovements between output and labor share.

Language
Englisch

Bibliographic citation
Series: SFB 649 Discussion Paper ; No. 2010-044

Classification
Wirtschaft
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Business Fluctuations; Cycles
Unemployment: Models, Duration, Incidence, and Job Search
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
Subject
credit and search frictions
labor market
unemployment
Verschuldungsrestriktion
Arbeitsmarkt
Lohnrigidität
Konjunktur
Arbeitslosigkeit
Volatilität
Theorie

Event
Geistige Schöpfung
(who)
Hristov, Atanas
Event
Veröffentlichung
(who)
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
(where)
Berlin
(when)
2010

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Hristov, Atanas
  • Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk

Time of origin

  • 2010

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