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How does finance affect employment and inter-industry job reallocation? The authors present a model that predicts that financial development increases employment and/or labor productivity and wages, with a smaller impact at high levels of the equilibrium wage and financial development; may induce either more or less reallocation of jobs depending on whether shocks to profit opportunities or to cash flow predominate; amplifies the output and employment losses in crises, firms that rely most on banks for liquidity being hit the hardest.
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