The Labor Market Effects of Loan Guarantee Programs

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: 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