Financing Constraints and Unemployment: Evidence from the Great Recession

Abstract

This paper exploits the differential financing needs across industrial sectors and provides strong empirical evidence that financing constraints of small businesses in the United States are important in explaining the unemployment dynamics during the Great Recession. We show that workers in small firms are more likely to become unemployed during the 2007-09 financial crisis if they work in industries with high external financing needs. We find very similar results for the 1990-91 recession, but not for the 2001 recession, where only the former was associated with a reduction in loan supply. These findings further support the credit constraints hypothesis.

Revisiting the Behavior of Small and Large Firms during the 2008 Financial Crisis

“…8 See also Herrera, Kolar, and Minetti (2011) for a study credit reallocation across firms. 9 Other recent works on the role of small and large firms in the propagation of shocks include Siemer (2014), Duygan-Bump, Levkov, and Montoriol-Garriga (2015), Mehrotra and Sergeyev (2016), Abo-Zaid and Zervou (2016), and Adelino, Ma, and Robinson (forthcoming).…”

Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics

“…Variations of the cross-industry cross-country approach have been employed to examine the economic e¤ects of di¤erences in …nancial development, institutional quality and trust across regions and over time (e.g. Cetorelli and Strahan, 2006;Bertrand, Schoar, and Tesmar, 2007;Hsieh and Parker, 2007;Aghion, Askenazy, Berman, Cette, and Eymar, 2012;Fafchamps and Schündeln, 2013;Feenstra, Hong, Ma, and Spencer, 2013;Duygan-Bump, Levkov, and Montoriol-Garriga, 2015;Jacobson and von Schedvin, 2015;Cingano and Pinotti, 2016).…”

Economic Impact of COVID-19 on the Vulnerable Population of Bangladesh

“…In the unemployment crisis, a rise in government spending could potentially reduce unemployment and could increase output both in that crisis and in the future (Rendahl, 2016). In the time of recession, 2007-08 workers in small farms who have more external financial dependence are comparatively more vulnerable to job loss than the workers in big farms (Duygan-Bump, Levkov, & Montoriol-Garriga, 2015). Nigeria, a developing country used public money to stimulate the economy in this pandemic crisis to restrict business failure but some responses were inefficient (P. Ozili, 2020).…”