Credit, unemployment and entrepreneurs.

Summary The high persistence of unemployment in several European countries has led to a shift in the debate on the performance of labor markets from the role of institutional rigidities to other areas of interest. The credit market and entrepreneurship are among them. The objective of this thesis is to contribute to the literature on the determinants of structural unemployment by studying on the one hand the interaction between labor and credit markets and on the other hand the interaction between entrepreneurship and unemployment. In the first part, we assess the impact of credit constraints on the level and persistence of unemployment. To do so, we develop a matching model in which we introduce credit constraints. We show that credit market imperfections increase the level of unemployment and slow down the transitory dynamics. We then test our theoretical predictions on a panel of 20 OECD countries over the period 1982-2003. Our empirical results suggest that credit constraints would significantly increase the level and persistence of unemployment. In a second part, we introduce the choice of occupation in a matching model with credit constraints. Individuals differ with respect to their entrepreneurial capacity and initial wealth. They choose their occupation in order to maximize their earnings. We show that the social optimum can never be decentralized when the credit market becomes constrained. On the one hand, credit constraints induce some talented but poor individuals to become job seekers. On the other hand, some rich but untalented individuals find it profitable to become entrepreneurs, which is another source of inefficiency. An individual's choice of occupation will depend on the tightness of the labor market and the level of constraints in the credit market. We show that when unemployment increases, the entrepreneurial reserve capacity decreases and more individuals have an incentive to become entrepreneurs because of worsening labor market conditions. Similarly, when the number of entrepreneurs increases in the economy, there is more job creation, which increases the number of vacancies and lowers unemployment. Finally, we empirically test these two theoretical predictions to determine what causal links govern the relationship between unemployment and entrepreneurship. Our results confirm the existence of two distinct relationships between entrepreneurship and unemployment operating in opposite directions.