Financing Constraints, Employment, and Labor Compensation: Evidence from the Subprime Mortgage Crisis

55 Pages Posted: 10 Jul 2015

See all articles by Alexander A. Popov

Alexander A. Popov

European Central Bank (ECB)

Jörg Rocholl

ESMT European School of Management and Technology

Date Written: July 9, 2015

Abstract

This paper identifies the effect of financing constraints on firms’ labor demand. We exploit exogenous funding shocks to German savings banks during the US mortgage crisis that are unrelated to local conditions. We find that firms with credit relationships with affected banks experienced a significant decline in employment and in labor compensation relative to firms whose credit relationships were with healthy banks. We also find that the employment effect increases, and the wage effect decreases with firm size. The decline in employment at firms attached to affected banks appears to be more long-lasting than the decline in labor compensation.

Keywords: Credit constraints, financial crisis, employment, labor compensation

JEL Classification: D92, G01, G21, J23, J31

Suggested Citation

Popov, Alexander A. and Rocholl, Joerg, Financing Constraints, Employment, and Labor Compensation: Evidence from the Subprime Mortgage Crisis (July 9, 2015). ECB Working Paper No. 1821. Available at SSRN: https://ssrn.com/abstract=2628750

Alexander A. Popov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Joerg Rocholl (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin
Germany

HOME PAGE: http://www.esmt.org/en/159244

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