Financial Markets and Labor Markets
Friday, Jan. 6, 2017 3:15 PM – 5:15 PM
- Chair: Avanidhar Subrahmanyam, University of California-Los Angeles
Bank Credit, Jobs, and Productivity Over the Business Cycle
AbstractAnecdotal evidence from the Great Recession and theories from macro-finance and labor economics suggest that contractions in bank credit should lead to large and persistent contractions in employment, but existing micro evidence is mixed. We construct and analyze a novel dataset that combines detailed loan-level information on the terms of bank debt contracts with plant-level information on employment. We track the establishments of a large sample of US firms whose creditors gain rights to accelerate, restructure, or terminate a loan due to a covenant violation. Using regression discontinuity and matched-sample estimators to achieve identification, we show that loan covenant violations lead to large and lasting increases in gross job destruction, but also affect gross job creation. We examine whether this creative-destruction effect of debt financing varies systematically across sectors and over time with macroeconomic conditions. In addition, we explore the implications of the effect for net job flows and productivity, as well as for the contribution of fluctuations in credit to employment adjustments over the business cycle.
Financial Exceptionalism? Employment, Earnings, and Inequality
AbstractIs the labor market for finance different from other labor markets? I bring together international evidence on employment, earnings and inequality and contrast finance with other industries. Finance is a small sector in most advanced economies, and its employment share has remained steady over the past quarter-century. With respect to many other employment characteristics, however, finance is special. Financial workers tend to: be more educated; have higher earnings; receive more of their pay in bonuses; earn large wage premiums; move less frequently to another industry; and contribute a disproportionate amount to labor income inequality.
Labor and Financial Markets Interactions and Macroeconomic Performances: A Comparison between France and Germany
AbstractThe aim of this paper is to analyze the role of the interactions between employment protection legislation (EPL), financialization and industrial relations with the aim of understanding the growing divergence in macroeconomic performances between France and Germany, particularly in terms of employment and wage/income inequality since the mid-2000s. I argue that France and Germany have followed divergent paths in terms of employment protection, resulting in different macroeconomic performances. However, these differences in employment protection level can be due to some institutional differences relating to corporate governance regime or to industrial relations institutions. Results from fixed-effects panel data estimations based on a sample of 19 OECD advanced countries from 1985 to 2013 provide some evidence for France or for Germany. When employment protection legislation (EPL) is interacted with financial development, results show a substitution relationship EPL and aggregate employment, regardless the nature of EL. However, I find a complementarity (resp. substitution) effect between higher EPL on regular contracts [EPR] (resp. EPL on temporary contracts [EPT]) and the degree of centralization of wage bargaining. By contrast, when explaining cross-country differences in wage/income inequality, I find a complementarity effect (respectively a substitution effect) between EPR (respectively EPT) and stock market capitalization or the degree of wage bargaining centralization.
- G1 - Asset Markets and Pricing