Recent evidence suggests that real estate collateral is an important determinant of firms’ employment decisions. Using administrative data for French firms, Chaney et al. (2013) show that shocks to the value of real estate have sizeable effects on employment and investment. The impact of collateral on investment appears to be larger for French firms than for the US firms covered by the Compustat database (Chaney et al., 2012).1 Moreover, investment appears to be considerably more sensitive to cash-flow variations in France, which suggests that French firms may be more financially constrained. To better understand how the labor market responds to shocks to the firms’ collateral value, this paper builds a canonical macroeconomic model with financially constrained firms and search frictions in the labor market. We calibrate the model to France and relate its business-cycle features to those in the data. In particular, we find that the model response to a shock to collateral value features amplification and propagation that are in line with those obtained from a VAR analysis. Our business–cycle model features collateral constraints and forward–looking land prices as in Kiyotaki and Moore (1997) and Kocherlakota (2000), on the one hand, and labor market frictions similar to Mortensen and Pissarides (1999), on the other hand. Firms hold productive land and capital, and they borrow in an international credit market, using land and (a fraction of) capital as collateral.2 In the labor market, firms post vacancies and they are matched with unemployed workers who are hired for production in the subsequent period.