OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

How does finance influence labour market outcomes?

A review of empirical studies

This paper reviews empirical research on finance and labour markets. Preliminary themes in the literature follow. Finance may interact with labour market institutions to jointly determine labour outcomes. Highly leveraged firms show greater employment volatility during cyclical fluctuations, and leverage strengthens firm bargaining power in labour negotiations. Bank deregulation may have mixed impacts on labour depending upon the state of bank regulations and labour markets. Leveraged buyouts tend to dampen acquired firm job growth as they pursue labour productivity gains. The shareholder value movement may contribute to short-termism among corporate managers, which can divert funds away from firm capital accumulation toward financial markets, crowd out productive investment and fuel unemployment. Declining wage shares in OECD countries may be driven in part by financial globalisation. The financial sector contributes to rising concentration near the top of the income distribution. Finance is linked to increased reallocation of labour, which may either enhance or impede productivity growth. Finally, there is limited evidence that rising interest rate environments and homeowners with mortgage balances that exceed their home’s value may reduce labour mobility rates.


Keywords: unemployment, labour mobility, wages, wage differential, capital structure, financial regulation, inequality, employment, Financial integration, deregulation, corporate finance, bank lending
JEL: J6: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers; G30: Financial Economics / Corporate Finance and Governance / Corporate Finance and Governance: General; J3: Labor and Demographic Economics / Wages, Compensation, and Labor Costs; G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; G18: Financial Economics / General Financial Markets / General Financial Markets: Government Policy and Regulation; F3: International Economics / International Finance
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