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

Brzustowski, Thomas, Petrosky-Nadeau, Nicolas and Wasmer, Etienne (2018) Disentangling goods, labor, and credit market frictions in three European economies. Labour Economics, 50. pp. 180-196. ISSN 0927-5371

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Identification Number: 10.1016/j.labeco.2016.05.006

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.

Item Type: Article
Official URL: http://www.journals.elsevier.com/labour-economics
Additional Information: © 2016 Elsevier B.V.
Divisions: Economics
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
Sets: Departments > Economics
Date Deposited: 15 Jul 2016 14:34
Last Modified: 20 Feb 2019 06:37
URI: http://eprints.lse.ac.uk/id/eprint/67146

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