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Employment Adjustment and Financial Constraints - Evidence from Firm-level Data

Gregor Bäurle (), Sarah Lein () and Elizabeth Steiner
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Gregor Bäurle: University of Basel

Authors registered in the RePEc Author Service: Gregor Bäurle ()

Working papers from Faculty of Business and Economics - University of Basel

Abstract: Firms adjust their employment to changes in output. But they tend to adjust it only partially. Typically, labor is hoarded in downturns and subsequently rms have to hire less in upturns. Investment in labor hoarding may therefore be in uenced by factors that impede investments, such as nancial constraints. Using rm-level data, we show that nancial constraints increase the sensitivity of employment to uctuations in output considerably. When output changes, nancially constrained rms resize their labor force substantially more than rms that have abundant funding. Limited internal funding opportunities turn out to be just as important as the reduced access to external nance. The strongest impact, however, is observed when internal and external constraints occur jointly. In that case, rms lay o two-and-a-half times more employees than unconstrained rms. The amplifying eect of nancial constraints is similar in upturns and downturns, implying that nancially constrained rms not only reduce their workforce more when demand decreases, but they also hire more labor when demand increases.

Keywords: Financial constraints; employment; labor hoarding (search for similar items in EconPapers)
JEL-codes: E24 E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-01-23
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Working Paper: Employment Adjustment and Financial Constraints - Evidence from Firm-level Data (2017) Downloads
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