Credit Supply Shocks and the Moderating Effects of Leverage on Employment and Wages in Brazil

José Filho, Michel Alexandre and João Caldeira

No 648, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Credit supply shocks are an important channel through which financial conditions affect employ ment dynamics within firms. This paper examines whether contractions in credit supply primar ily reduce employment levels or also alter workforce composition across workers with different skill levels, and whether these effects depend on firms’ financial leverage. Using matched em ployer–employee administrative data combined with credit registry information and firm-level balance sheet data, we construct plausibly exogenous measures of credit supply shocks based on bank-level variation in lending conditions between 2013 and 2022. The results show that adverse credit shocks reduce employment among both high- and low-skilled workers, with stronger effects on high-skilled employment in more leveraged firms during the 2013–2016 recession. By con trast, employment adjustments among low-skilled workers are more pronounced in less leveraged f irms during the recovery period. Overall, the findings indicate that credit shocks affect not only employment levels but also workforce composition, highlighting the moderating role of firms’ capital structure.

Date: 2026-05
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