Working Paper: NBER ID: w22420
Authors: Jeannoel Barrot; Ramana Nanda
Abstract: In 2011, the federal government accelerated payments to their small business contractors, spanning virtually every county and industry in the US. We study the impact of this reform on county-sector employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased 10 cents for each accelerated dollar, with two-thirds of the effect coming from an increase in new hires and the balance from an increase in earnings. Importantly, however, we document substantial crowding out of non-treated firms employment, particularly in counties with low rates of unemployment. Our results highlight an important channel through which financing constraints can be alleviated for small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to a substantially lower net impact on aggregate outcomes.
Keywords: quick-pay reform; employment; small businesses; financing constraints
JEL Codes: E2; G2; H57; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| federal quick-pay reform (H77) | aggregate employment growth (O40) |
| accelerated dollar of sales (C69) | payroll increase (J39) |
| payroll increase (J39) | new hires (M51) |
| payroll increase (J39) | increased earnings per worker (J31) |
| increased demand for labor from treated firms (J23) | crowding out of employment growth among non-treated firms (J68) |
| crowding out of employment growth among non-treated firms (J68) | higher difficulty for non-treated firms to hire (J79) |
| quick-pay reform (J33) | stronger effects in sectors with larger receivables (G32) |
| quick-pay reform (J33) | stronger effects in counties with severe financing frictions (E44) |
| quick-pay reform (J33) | stimulated employment in areas with high unemployment (J68) |
| quick-pay reform (J33) | lower overall net impact on aggregate outcomes (F62) |