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Essays on labour market and financial frictions

Sepahsalari, A; (2017) Essays on labour market and financial frictions. Doctoral thesis , UCL (University College London).

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This thesis studies the labour market consequences of financial frictions and investigates how the interaction between frictions in the labour and financial markets affects the job-finding decisions of unemployed workers as well as the job creation and layoff decisions of firms. In the first chapter, the focus is placed on the firm side to study how the interaction of frictions reduces the mobility of the labour force from unproductive to productive firms. It demonstrates that capital market tightening reduces the hiring of productive firms while, at the same time, labour market frictions cause delays in the layoff decisions of unproductive firms. This interaction between labour and financial market frictions generates a delay in the reallocation of labour and capital and therefore deepens the recession. The second chapter concentrates on the job-finding decision of risk averse workers in the absence of a perfect insurance market. We first derive the theoretical conditions under which there exists positive (negative) assortative matching between a worker’s asset holding and a firm’s productivity. Then, we evaluate a tax-financed unemployment insurance (UI) scheme and identify the channels through which higher benefits affect workers with different levels of assets. Finally, we compare a one-off severance payment with per-period benefits and find that the latter generate superior welfare. This has important implications for the effectiveness of policies aimed at reallocating workers to more productive jobs. The final chapter looks at the role of assets versus skills in the job-finding decision of unemployed workers. High-asset workers have a higher natural preference complementarity with more productive firms while highly skilled workers have higher technological complementarity. The main contribution of this chapter is to find the conditions under which a firm with a given productivity level is indifferent between a low-asset high-skill worker and a high-asset low-skill worker.

Type: Thesis (Doctoral)
Title: Essays on labour market and financial frictions
Event: UCL (University College London)
Language: English
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1559781
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