Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business and NBER
NBER Working Paper No. w17144
Financial market imperfections can have significant impact on employment decisions of firms. We illustrate the economic importance of this channel by demonstrating that the responsiveness of employment decisions to firms’ financial health is quantitatively similar to the much-studied responsiveness of investment decisions to cash-flows. We use a collage of three ‘quasi-experiments’ used previously in the investment-cash flow and finance-growth literatures to trace the effects of finance on employment. Our results suggest that financial constraints and the availability of credit play an important role in firm-level employment decisions, as well as aggregate unemployment outcomes
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Number of Pages in PDF File: 33working papers series
Date posted: June 20, 2011
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