Banks, Firms, and Jobs

Abstract

We analyze the employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The contraction in credit supply explains one fourth of the reduction in employment. This result is concentrated in more levered and less productive firms. Also, the relatively less educated and less skilled workers with temporary contracts are the most affected. Our results are consistent with the cleansing role of financial shocks.

The Real Effects of Credit Supply: Review, Synthesis, and Future Directions

“…Interestingly, the evidence on employment effects is sometimes moderate (e.g., Greenstone et al, 2014;Popov and Rocholl, 2018) or not significant (e.g., , presumably because employment protection laws might induce companies to cut wages rather than employees (e.g., Popov and Rocholl, 2018). The role of employment protection is also consistent with the observation that labour force adjustments often concentrate on less educated (e.g., Hochfellner et al, 2015), shorter-tenured (e.g., Caggese et al, 2019), younger (e.g., Berton et al, 2018) and/or female employees (e.g., Berton et al, 2018), and in particularly those with temporary contracts (e.g., Caggese and Cuñat, 2008).…”

“…A large set of papers in the literature has sought to quantify the impact on the number of workers along with the heterogeneous effects across firms characteristics (e.g., Chodorow-Reich, 2013;Bentolila et al, 2017;Berton et al, 2018;Popov and Rocholl, 2018;Huber, 2018). Moreover, a growing body of the literature analyses the resulting changes in the composition of the labour force (e.g., Barbosa et al, 2019;Bentolila et al, 2017;Berton et al, 2018) as well as in wages (e.g., Hochfellner et al, 2015;Popov and Rocholl, 2018).…”

“…In addition, analyses the results of loan applications to a major German bank following the 2008 crisis, and on average finds that the effect of loan rejection on employment is negative but not significant, corroborating the small deteriorating effect found by both Popov and Rocholl (2018) and Hochfellner et al (2015) for German samples. Berton et al (2018) also use loan-level matched bank-firm data and apply the methodology of Greenstone et al (2014), but rather construct credit supply shocks at the firm level rather than at the county level. They assess the employment outcomes of Italian firms in the Veneto region for the period of 2008 to 2012.…”

“…Empirical research linking credit supply to employment focuses principally on the effect across firm size. Most studies document that disruptions in credit supply cause higher reduction in employment in smaller firms (Chodorow-Reich, 2013;Duygan-Bump et al, 2015;Berton et al, 2018;Balduzzi et al, 2018;Siemer, 2019). Chodorow-Reich (2013) even finds no significant effect on large firms during the Great Recession.…”

“…Firm age is also frequently examined as a source of heterogeneity. Ample evidence indicates that credit supply reductions lead to a larger employment fall in younger firms (Berton et al, 2018;Balduzzi et al, 2018;Siemer, 2019). In fact, Siemer (2019) shows that the greater negative impact on small firms is largely driven by young firms, which are often small.…”