The Employment Effects of Faster Payment: Evidence from the Federal Quickpay Reform
75 Pages Posted: 18 Jul 2016 Last revised: 30 Jul 2018
Date Written: July 30, 2018
We study the impact of Quickpay, a federal reform that indefinitely accelerated payments to small business contractors of the U.S. government. We find a strong direct effect of the reform on employment growth at the firm-level. Importantly, how-ever, we also document substantial crowding out of non-treated firms' employment within local labor markets. While the overall net employment effect was positive, it was close to zero in tight labor markets – where crowding out was stronger. Our results highlight an important channel for alleviating financing constraints in small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to lower aggregate outcomes depending on labor market conditions.
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