Financial Shocks and Job Flows

Dmitriy Sergeyev and Neil Mehrotra

No 11677, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We argue that the creation and destruction margins of employment (job flows) at the aggregate level and disaggregated across firm age and size can be used to measure the employment effects of disruptions to firm credit. Using a firm dynamics model, we establish that a tightening of credit to firms reduces employment primarily by reducing gross job creation, exhibiting stronger effects at new/young firms and middle-sized firms (20-99 employees). We find that 18% of the decline in US employment during the Great Recession is due to the firm credit channel. Using MSA-level job flows data, we show that the behavior of job flows overall and across firm size and age categories in response to identified credit shocks is consistent with our model’s predictions and hold within tradable and non-tradable industries.

Keywords: Job flows; Financial frictions (search for similar items in EconPapers)
JEL-codes: E44 J60 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-lab and nep-mac
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Citations: View citations in EconPapers (7)

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Working Paper: Financial Shocks and Job Flows (2015)
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