A0938
Title: Hiring uncertainty, investment and job creation: The role of financial frictions
Authors: Ekkehard Ernst - International Labour Organization (Switzerland) [presenting]
Abstract: The aim is to analyze the role of financial market frictions on the effects of uncertainty shocks on growth and employment. A newly developed hiring uncertainty indicator is used to measure the difference between hiring intentions and actual job creation. The effect of this hiring uncertainty on macro and labour market dynamics is analysed both theoretically and empirically. The theoretical part considers a stochastic growth model with different shocks on the returns to capital and employment and analyses the role of financial market frictions in transmitting these shocks to capital accumulation and job creation. The empirical part analyses the importance of historical hiring uncertainty shocks for G7 countries by means of a panel SVAR approach. In particular, it is shown that in times of distressed financial markets when frictions are large, hiring uncertainty can exercise a large, negative effect on both growth and employment with long-lasting effects. A quantitative measure of these effects is provided for the average G7 country and estimates the role of hiring uncertainty during the recent crisis.
