Can Paying Firms Quicker Affect Aggregate Employment?

Jean-Noel Barrot and Ramana Nanda

No 22420, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E2 G2 H57 J2 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-lma, nep-mac and nep-ure
Note: CF LS PE PR
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Citations: View citations in EconPapers (9)

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