Credit constraints and the persistence of unemployment

Arbeitspapier

In this paper, we argue that credit market imperfections impact not only the level of unemployment, but also its persistence. For this purpose, we first develop a theoretical model based on the equilibrium matching framework of Mortensen and Pissarides (1999) and Pissarides (2000) where we introduce credit constraints. We show these credit constraints not only increase steady-state unemployment, but also slow down the transitional dynamics. We then provide an empirical illustration based on a country panel dataset of 20 OECD countries. Our results suggest that credit market imperfections significantly increase the persistence of unemployment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 4501

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Financial Markets and the Macroeconomy ; Labor Economics Policies ; Unemployment: Models, Duration, Incidence, and Job Search
• Subject: Credit markets ; labor markets ; unemployment ; credit constraints ; search frictions ; Arbeitslosigkeit ; Hysteresis ; Verschuldungsrestriktion ; Theorie der Arbeitslosigkeit ; Arbeitsuche ; Schätzung ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dromel, Nicolas ; Kolakez, Elie ; Lehmann, Etienne
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/36120
• URN: urn:nbn:de:101:1-20091104951
• Last update: 10.03.2025, 11:44 AM CET