Firm Leverage, Consumer Demand, and Employment Losses during the Great Recession

50 Pages Posted: 11 Jan 2017

See all articles by Xavier Giroud

Xavier Giroud

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: January 1, 2017

Abstract

We argue that firms’ balance sheets were instrumental in the propagation of consumer demand shocks during the Great Recession. Using establishment-level data, we show that establishments of more highly levered firms exhibit a significantly larger decline in employment in response to a drop in consumer demand. These results are not driven by firms being less productive, having expanded too much prior to the Great Recession, or being generally more sensitive to fluctuations in either aggregate employment or house prices. At the county level, we find that counties with more highly levered firms experience significantly larger job losses in response to county-wide consumer demand shocks. Thus, firms’ balance sheets also matter for aggregate employment. Our research suggests a possible role for employment policies that target firms directly besides conventional stimulus.

Suggested Citation

Giroud, Xavier and Mueller, Holger M., Firm Leverage, Consumer Demand, and Employment Losses during the Great Recession (January 1, 2017). US Census Bureau Center for Economic Studies Paper No. CES-WP-17-01. Available at SSRN: https://ssrn.com/abstract=2896892 or http://dx.doi.org/10.2139/ssrn.2896892

Xavier Giroud (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.columbia.edu/~xg2285/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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Holger M. Mueller

New York University (NYU) - Department of Finance ( email )

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New York, NY 10012-1126
United States
212-998-0341 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~hmueller/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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