Labor market and systemic risk: a network-based approach

Labor market and systemic risk: a network-based approach

• Author
• Michel Alexandre
• Co-authors
• Thiago Christiano Silva
• Abstract

• In this paper, we explore the labor market channel of systemic risk. We consider that distressed firms, besides defaulting on part of their debt commitments, also react to negative shocks by laying off part of their employees. This constitutes another source of systemic risk, as these dismissed employees will not be able to honor their debt commitments. Using Brazilian data, we compute the systemic risk considering three possible strategies adopted by distressed firms: layoff of employees, default on debt commitments, or both strategies. We have found, among other things, that the labor market channel of systemic risk cannot be dismissed. Its contribution to the overall systemic risk has increased in the last months and the amplification of initial shocks is higher through this channel than through the firms’ loans channel.

• Keywords
• mercado de trabalho, risco sistêmico, redes complexas
• Subject Area
• Econometrics and Numerical Methods

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