The Unemployment Accelerator

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6248

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy
• Subject: unemployment ; default risk ; credit market frictions ; search frictions ; wage bargaining

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blanco, Julio ; Navarro, Gaston
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/149335
• Last update: 10.03.2025, 11:42 AM CET