This paper develops the thesis that credit market frictions may be an important contributor to high unemployment in Europe. When a change in the technological regime necessitates the creation of new firms, this can happen relatively rapidly in the U.S. where credit markets function efficiently....

This paper offers a model where firms decide what types of jobs to create and then search for suitable workers. When there are few skilled workers and the productivity gap between the skilled and the unskilled is small, firms create a single type of job and recruit all workers. An increase in...