Working Paper: CEPR ID: DP17693
Authors: Simon Baumgartner; Alex Stomper; Tom Schober; Rudolf Winterebmer
Abstract: How does small-firm employment respond to exogenous labor productivity risk? We find that this depends on the capitalization of firms' local banks. The evidence comes from firms employing workers whose productivity depends on the weather. Weather-induced labor productivity risk reduces this employment, and this effect is stronger in regions where the regional banks have less equity capital. Bank capitalization also proxies for the extent to which the regional banks' borrowers can obtain liquidity when the regions are hit by weather shocks. We argue that, as liquidity providers, well-capitalized banks support economic adaptation to climate change.
Keywords: labor productivity risk; bank capitalization
JEL Codes: G21; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Exogenous Labor Productivity Risk (J49) | Employment in Small Firms (L26) |
| Weather Shocks (Q54) | Labor Productivity Risk (D24) |
| Labor Productivity Risk (D24) | Employment in Small Firms (L26) |
| Financial Frictions (G19) | Employment Decisions (M51) |
| Bank Capitalization (G21) | Employment Sensitivity to Labor Productivity Risk (J29) |
| Bank Capitalization (G21) | Employment in Small Firms (L26) |