Year: 2026
Type: article
Abstract: This paper investigates how firm‐level financial constraints affect individual wages and aggregate labor market dynamics during financial recessions. We derive testable predictions from competing theoretical mechanisms and assess them empirically using German administrative worker data matched to firm balance sheets. Embedding these microlevel estimates in a macroeconomic model with labor and financial frictions, we demonstrate how small ceteris paribus effects align with large aggregate dynamics. Tighter financial conditions amplify wage and unemployment volatility, weakening the tight link between wage rigidity and the volatility of unemployment discussed in the literature. Financial constraints reduce the effectiveness of hiring subsidies during recessions.
DOI: 10.1111/jmcb.70108
Authors: HAMZEH ARABZADEH, ALMUT BALLEER, BRITTA GEHRKE
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,800
Funder: Deutsche Forschungsgemeinschaft
Award: G6791173653
OpenAlex ID: W4381785845