Can Paying Firms Quicker Affect Aggregate Employment?

63 Pages Posted: 18 Jul 2016

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

Massachusetts Institute of Technology (MIT)

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

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Date Written: July 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 county-sector employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased 10 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. Importantly, however, we document substantial crowding out of non-treated firms employment, particularly in counties with low rates of unemployment. Our results highlight an important 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 Affect Aggregate Employment? (July 2016). NBER Working Paper No. w22420. Available at SSRN: https://ssrn.com/abstract=2810930

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

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