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.
Suggested Citation: 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