Reference

Jean Noel Barrot (MIT Sloan School of Management), “Labor Market Effects of Financing Frictions”, Fédération des Banques Françaises Seminar, TSE, March 14, 2016, 12:30–14:00, room MF 323.

Abstract

We study a fall in financing constraints for small businesses following the US Federal Quickpay reform of 2011 and estimate its effect on firm-level employment. The reform accelerated payments for a subset of small business contractors to the US government, leading to a large positive cash flow shock for those firms through a reduced need to finance working capital. We find that on average, each accelerated dollar led to a 12 cent increase in payroll, with two-thirds of the effect coming from an increase in new hires and the balance from an increase in earnings for new and existing workers. Importantly, however, we find substantial crowding out in the employment growth among non-treated firms in counties with low unemployment, as well as within-state employment flows from low to high treatment industries. Our results highlight the substantial direct and indirect effects of firm-level financial frictions on labor market outcomes as well as point to a channel through which misallocation of capital could drive misallocation of labor in the aggregate economy.

Research partnership