Can Paying Firms More Quickly Affect Aggregate Employment?

67 Pages Posted: 18 Jul 2016 Last revised: 3 Feb 2017

Jean-Noel Barrot

Massachusetts Institute of Technology (MIT)

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

Multiple version iconThere are 2 versions of this paper

Date Written: January 2017

Abstract

We study the impact of Quickpay, a federal reform that indefinitely accelerated payments to small business contractors of the U.S. government. Despite treated firms being paid just 15 days sooner, we find a strong direct effect of the reform on county-sector employment growth. Importantly, however, 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 direct effects were weaker and crowding out 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.

Suggested Citation

Barrot, Jean-Noel and Nanda, Ramana, Can Paying Firms More Quickly Affect Aggregate Employment? (January 2017). Harvard Business School Entrepreneurial Management Working Paper No. 17-004. Available at SSRN: https://ssrn.com/abstract=2808666 or http://dx.doi.org/10.2139/ssrn.2808666

Jean-Noel Barrot

Massachusetts Institute of Technology (MIT) ( email )

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

Ramana Nanda (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

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

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