Working Paper: NBER ID: w18480
Authors: Guillermo A. Calvo; Fabrizio Coricelli; Pablo Ottonello
Abstract: This paper uses a sample of 116 recession episodes in developed and emerging market economies to compare the labor-market recovery during financial crises with that of other recession episodes. It documents two new stylized facts. First, labor-market recovery from financial crises is characterized by either higher unemployment ("jobless recovery") or a lower real wage ("wageless recovery"). Second, inflation determines the type of recovery: low inflation (below 30 percent annual rate) is associated with jobless recovery, while high inflation is associated with wageless recovery. The paper shows that this pattern of labor recovery from financial crises is consistent with a simple model in which collateral requirements are higher (lower) when a larger share of labor costs (physical capital expenditure) is involved in a loan contract.
Keywords: Labor Market; Financial Crises; Inflation; Jobless Recovery; Wageless Recovery
JEL Codes: E2; E31; E44; F3; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial crises (G01) | jobless recoveries (J64) |
| financial crises (G01) | increased unemployment in low-inflation environments (J64) |
| low inflation (E31) | jobless recoveries (J64) |
| financial crises (G01) | wageless recoveries (J38) |
| high inflation (E31) | wageless recoveries (J38) |
| financial crises (G01) | decline in real wages during recovery (F66) |
| jobless recoveries (J64) | higher unemployment rates when output recovers (J64) |