{ "title": "Financial Amplification of Labor Supply Shocks", "publication": "IMF Working Papers, September 18, 2020", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743", "canonical": "https://www.imf.org/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743", "overlayPath": "/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/index.md", "summary": "We study how financial frictions amplify labor supply shocks in a macroeconomic model with occasionally binding financing constraints. Workers supply labor to entrepreneurs who borrow to purchase factors of production.", "sections": [ { "heading": "Overview", "content": "- Authors: Nina Biljanovska, Alexandros Vardoulakis\n- Date: September 18, 2020\n- Core question: How do financial frictions amplify labor supply shocks in a macroeconomic model with occasionally binding financing constraints?\n- Model setup:\n - Workers supply labor to entrepreneurs.\n - Entrepreneurs borrow to purchase factors of production.\n - Borrowing capacity is restricted by the value of capital, creating a pecuniary externality when financing constraints bind.\n - A distributive externality operates through wages.\n- Contextual example: Labor shocks such as the COVID-19 shock amplify policy responses depending on whether financing constraints bind." }, { "heading": "Key findings and mechanisms", "content": "- Financial amplification:\n - Financing constraints tied to collateral (value of capital) generate a pecuniary externality that amplifies labor supply shocks when constraints bind.\n- Distributive externality:\n - Wages mediate a distributive externality that interacts with financing constraints to influence aggregate outcomes.\n- Decentralization of planner’s allocation:\n - The planner’s allocation can be decentralized using two instruments:\n - a credit tax/subsidy\n - a labor tax/subsidy\n- Policy response amplification:\n - Labor shocks amplify policy responses, and the nature of optimal policy critically depends on whether financing constraints are binding." }, { "heading": "Policy implications and instruments", "content": "- Two targeted instruments can implement the planner’s allocation:\n - Credit tax/subsidy to address pecuniary externalities arising from collateral constraints.\n - Labor tax/subsidy to correct distributive externalities transmitted through wages.\n- Relevance for pandemic policy:\n - Labor supply shocks like those from COVID-19 strengthen the importance of assessing whether financing constraints bind when designing fiscal and credit interventions." }, { "heading": "Publication and metadata", "content": "- Series: Working Paper No. 2020/189\n- Issue: 189\n- Volume: 2020\n- Pages: 34\n- DOI: https://doi.org/10.5089/9781513557311.001\n- Stock No: WPIEA2020189\n- ISBN: 9781513557311\n- ISSN: 1018-5941\n- Citation preview (Chicago): Nina Biljanovska, and Alexandros Vardoulakis. \"Financial Amplification of Labor Supply Shocks\", IMF Working Papers 2020, 189 (2020), accessed 9/18/2026, https://doi.org/10.5089/9781513557311.001\n\nSource: IMF Working Papers landing page for \"Financial Amplification of Labor Supply Shocks\"\n\n---\n\n Content in this bundle\n\n- Working Paper\n - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/index.md)", "[Structured JSON version](/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/index.json)", "[Bundle manifest](/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/bundle-manifest.json)", "Authors: Nina Biljanovska, Alexandros Vardoulakis", "Published: September 18, 2020", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781513557311.001", "Authors: Nina Biljanovska, Alexandros Vardoulakis", "Date: September 18, 2020", "Core question: How do financial frictions amplify labor supply shocks in a macroeconomic model with occasionally binding financing constraints?", "Model setup:", "Contextual example: Labor shocks such as the COVID-19 shock amplify policy responses depending on whether financing constraints bind.", "Financial amplification:", "Distributive externality:", "Decentralization of planner’s allocation:", "Policy response amplification:", "Two targeted instruments can implement the planner’s allocation:", "Relevance for pandemic policy:", "Series: Working Paper No. 2020/189", "Issue: 189", "Volume: 2020", "Pages: 34", "DOI: https://doi.org/10.5089/9781513557311.001", "Stock No: WPIEA2020189", "ISBN: 9781513557311", "ISSN: 1018-5941", "Citation preview (Chicago): Nina Biljanovska, and Alexandros Vardoulakis. \"Financial Amplification of Labor Supply Shocks\", IMF Working Papers 2020, 189 (2020), accessed 9/18/2026, https://doi.org/10.5089/9781513557311.001", "**Working Paper**" ], "related": [ { "title": "Working Paper", "role": "paper", "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020189-print-pdf.pdf", "summary": { "path": "/-/media/files/publications/wp/2020/english/wpiea2020189-print-pdf.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/wp/2020/english/wpiea2020189-print-pdf.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/index.md", "json": "/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/index.json", "bundleManifest": "/en/publications/wp/issues/2020/09/18/financial-amplification-of-labor-supply-shocks-49743/bundle-manifest.json" }, "generatedAtUtc": "2026-09-18T17:41:48.011Z" }