Exploring the Role of Financial Development in Labor Market Volatility

Abstract

The study explored the relationship of financial development at domestic and international level with volatility of labor market in Pakistan. To model the volatility in labor market the rolling standard deviation procedure of employment variable was used. The other control variables included in endeavor were trade openness, gross fixed capital and output growth. ARDL approach was employed for the estimation of cointegration relationship using annual data from the period 1973-2020. This research found a significant positive influence of financial markets on variables of labor market. The results have provided evidence founded on theory of financial fragility by Keynes (1936) and Minsky (1986). The negative value of ECM (-0.253) also shows convergence behavior and a meaningful speed of adjustment. The study suggested that growth in financial markets is needed to strengthen economic position of a country because it has a significant impact on labor market.