The interaction between credit and labor market frictions

    Research output: Working paperDiscussion paper


    I study a novel two-way feedback between credit and labor market frictions. Running from credit to labor markets, amplitude in capital demand induced by collateral constraints spills over onto labor demand due to the complementarity of capital and labor; and, furthermore, credit frictions raise effective financial hiring costs, inducing firms to delay hiring in recessions. Running back from labor to credit markets, search frictions admit a degree of inflexibility in wages which induces greater volatility of net worth, via the wage bill, which then spills over onto capital demand. Together, these considerably amplify and propagate labor and capital market dynamics.
    Original languageEnglish
    Place of PublicationSt Andrews
    PublisherUniversity of St Andrews
    Number of pages55
    Publication statusPublished - 7 Dec 2020

    Publication series

    NameSchool of Economics and Finance discussion paper
    PublisherUniversity of St Andrews
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X


    • Credit frictions
    • Collateral constraints
    • Search frictions
    • Unemployment
    • Wages


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