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Unemployment and liquidity constraints

Hajivassiliou, Vassilis Argyrou and Ioannides, Y (1995) Unemployment and liquidity constraints. CEP Discussion Papers (CEPDP0243). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

In this paper we propose a modelling approach for labor supply and consumption decisions that is firmly grounded within a utility maximizing framework and allows for a role of such institutional constraints as limited access to borrowing and involuntary unemployment. We report estimates for a system of dynamic probit models with data from the Panel Study of Income Dynamics. These estimations test broad predictions of the theoretical model. One of our models describes a household's propensity to be liquidity constrained in a given period. The second is a dynamic ordered probit model for a labor constraint indicator describing qualitative aspects of the conditions of employment, that is whether the household head is involuntarily overemployed, voluntarily employed, or involuntarily underemployed or unemployed. These models are estimated separately as well as jointly. Our results provide strong support for the basic theory of constrained behavior and the interaction liquidity constraints and exogenous constraints on labor supply.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 1995 The Author(s)
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: J - Labor and Demographic Economics > J0 - General > J00 - General
Date Deposited: 20 Feb 2024 13:51
Last Modified: 14 Sep 2024 04:43
URI: http://eprints.lse.ac.uk/id/eprint/121661

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