Can Paying Firms More Quickly Affect Aggregate Employment?
67 Pages Posted: 18 Jul 2016 Last revised: 3 Feb 2017
Date Written: January 2017
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.
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