Can Paying Firms Quicker Impact Aggregate Employment?

66 Pages Posted: 1 Jun 2016 Last revised: 2 Feb 2017

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

Massachusetts Institute of Technology (MIT)

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

Date Written: October 2016

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 industry-county employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased nearly 20 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 for new and existing workers. Importantly, however, we find evidence of crowding out in employment growth among non-treated firms, particularly in counties with low rates of unemployment. Our results highlight an important and understudied 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.

Suggested Citation

Barrot, Jean-Noel and Nanda, Ramana, Can Paying Firms Quicker Impact Aggregate Employment? (October 2016). Paris December 2016 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2787204 or http://dx.doi.org/10.2139/ssrn.2787204

Jean-Noel Barrot (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Ramana Nanda

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
19
Abstract Views
333
PlumX Metrics