The Time-varying Effect of Financial Shocks on Labor Market:Empirical Study Based on TVP-SV-VAR Model
We examine the impact of financial shocks on the labor market from the perspective of the inter-connected dynamics between financial and labor markets by constructing a Financial Conditions Index ( FCI) for China. Utilizing a Time-Varying Parameter Stochastic Volatility Vector Autoregression ( TVP-SV-VAR) model,we study the effects and time-varying characteristics of these shocks. Our findings indicate that financial shocks significantly disrupt the supply-demand balance in the labor market. Worsening finan-cial conditions lead to higher unemployment rates,lower wage levels,and further macroeconomic contrac-tion. Mechanism analysis reveals that corporate leverage amplifies the negative effects of financial shocks,tightened financial conditions result in adverse leverage adjustments,exacerbating labor demand contraction and increasing unemployment rates. A comparative analysis of cross-border and domestic financial shocks shows that the magnitude of the shocks,rather than the transmission channels,is the primary factor driving differences in their impacts on China's labor market. Based on these insights,we recommend mitigating fi-nancial risks alongside counter-cyclical adjustments to enhance the effectiveness of policies aimed at stabili-zing key entities and employment.
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