CREDIT AND UNEMPLOYMENT: DO INSTITUTIONS MATTER?

Among various consequences of the subprime mortgage crisis, which broke out during the summer of 2007, the burst of unemployment is undoubtedly the most concerning. The rise in unemployment has been particularly pronounced in the US. The most direct manifestation of the subprime crisis for the 'real' economy has been the dramatic reduction in access to credit faced by households and, above all, by firms. The credit crunch mainly results from both liquidity shrinkage and failures in the banking system. The aim of this paper is to examine this issue and its normative implications. Following this introduction, we analyse the relationship between firms' access to credit and unemployment in the second section. The third section is dedicated to the literature on institutional and legal determinants of the access to credit. In the fourth section, we both complete and moderate the view developed in the second section, stressing the complex interactions that exist between financial arrangements and labour market institutions. [PUB ABSTRACT]