Working Paper: NBER ID: w17144
Authors: Efraim Benmelech; Nittai K. Bergman; Amit Seru
Abstract: Financial market imperfections can have significant impact on employment decisions of firms. We illustrate the economic importance of this channel by demonstrating that the responsiveness of employment decisions to firms' financial health is quantitatively similar to the much-studied responsiveness of investment decisions to cash-flows. We use a collage of three 'quasi-experiments' used previously in the investment-cash flow and finance-growth literatures to trace the effects of finance on employment. Our results suggest that financial constraints and the availability of credit play an important role in firm-level employment decisions, as well as aggregate unemployment outcomes
Keywords: financial constraints; employment; credit availability; bank deregulation; economic downturns
JEL Codes: D53; E24; E44; G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cash flow (E50) | employment (J68) |
| maturing long-term debt (G32) | employment (J68) |
| bank deregulation (G28) | unemployment (J64) |
| credit supply shock (E51) | unemployment (J64) |