Finance and Jobs: How Financial Markets and Prudential Regulation Shape Unemployment Dynamics

摘要

This article explores the impact of financial market regulation on jobs. It argues thatunderstanding the impact of finance on labor markets is key to an understanding of the trade-offbetween economic stability and financial sector growth. The article combines information on labormarket flows with indicators of financial market development and reforms to assess the implicationsof financial markets on employment dynamics directly, using information from the InternationalLabour Organization (ILO) datatabse on unemployment flows. On the basis of a matching model ofthe labor market, it analyses the economic, institutional, and policy determinants of unemploymentin- and out-flows. Against a set of basic controls, we present evidence regarding the relationshipbetween financial sector development and reforms and their impact on unemployment dynamics.Using scenario analysis, the article demonstrates the importance of broad financial sector re-regulationto stabilize unemployment inflows and to promote faster employment growth. In particular, we findthat encompassing financial sector regulation, had it been in place prior to the global financial crisisin 2008, would have helped a faster recovery in jobs.