The Labor Market Effects of Loan Guarantee Programs

90 Pages Posted: 27 Jun 2019 Last revised: 5 Nov 2024

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris; HEC Paris

Thorsten Martin

Frankfurt School of Finance & Management

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Boris Vallee

Harvard Business School - Finance Unit

Date Written: July 20, 2021

Abstract

We investigate the labor market effects of a loan guarantee program targeting French SMEs during the financial crisis. Exploiting differences in regional treatment intensity in a border discontinuity design, we uncover a central trade-off for such interventions. While the program has a positive impact on workers' employment and earnings trajectories which translates into positive aggregate employment effects, it dampens the worker reallocation towards more productive firms that happens following recessions, and particularly so for high-skill workers. This labor allocation effect is economically significant and translates into a reduction in aggregate productivity.

Keywords: Loan Guarantees, Financial Frictions, Labor Market, Employment Trajectory

JEL Classification: G28, G33, H81, J23, J31, J65

Suggested Citation

Barrot, Jean-Noel and Barrot, Jean-Noel and Martin, Thorsten and Sauvagnat, Julien and Vallee, Boris, The Labor Market Effects of Loan Guarantee Programs (July 20, 2021). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3409349 or http://dx.doi.org/10.2139/ssrn.3409349

Jean-Noel Barrot

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Thorsten Martin

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://https://sites.google.com/view/thorstenmartin

Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Boris Vallee (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States

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