Disentangling goods, labor, and credit market frictions in three European economies

Thomas Brzustowski, Nicolas Petrosky-Nadeau, Etienne Wasmer

    Research output: Contribution to journalArticle

    Abstract

    We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In these three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of the total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers. This adds up to, at most, an additional 15% to 25% to the impact of the shocks. Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: most variation in unemployment comes from the speed of matching in the labor market.

    Original languageEnglish (US)
    Pages (from-to)180-196
    Number of pages17
    JournalLabour Economics
    Volume50
    DOIs
    StatePublished - Mar 1 2018

    Fingerprint

    Credit markets
    Market frictions
    Labour market
    Entry costs
    Unemployment
    Finance
    Germany
    Propagation
    Search frictions
    Rigidity
    Spain
    Moderation
    Income
    Supply shocks
    Wages
    Labor

    Keywords

    • Financial frictions
    • Goods frictions
    • Matching
    • Search

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Organizational Behavior and Human Resource Management

    Cite this

    Disentangling goods, labor, and credit market frictions in three European economies. / Brzustowski, Thomas; Petrosky-Nadeau, Nicolas; Wasmer, Etienne.

    In: Labour Economics, Vol. 50, 01.03.2018, p. 180-196.

    Research output: Contribution to journalArticle

    Brzustowski, Thomas ; Petrosky-Nadeau, Nicolas ; Wasmer, Etienne. / Disentangling goods, labor, and credit market frictions in three European economies. In: Labour Economics. 2018 ; Vol. 50. pp. 180-196.
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