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Do credit shocks affect labor demand? Evidence for employment and wages during the financial crisis

Alexander Popov () and Jörg Rocholl

Journal of Financial Intermediation, 2018, vol. 36, issue C, 16-27

Abstract: We study the impact of exogenous funding shocks to German savings banks during the U.S. subprime mortgage crisis on the labor decisions of 30,000 + private and public firms in Germany. We find that firms with credit relationships with affected banks experience a significant decline in labor demand relative to firms with credit relationships with healthy banks, manifested in a simultaneous reduction in firm-level employment and average wages. The employment effect is more pronounced in larger firms, while the wage effect is stronger in smaller firms. Both employment and wages go back to pre-shock levels three years after the shock.

Keywords: Credit shocks; Financial crisis; Labor demand; Employment; Wages (search for similar items in EconPapers)
JEL-codes: D92 G01 G21 J23 J31 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jfinin:v:36:y:2018:i:c:p:16-27