The Labor Market Effects of Loan Guarantee Programs
63 Pages Posted: 27 Jun 2019 Last revised: 28 Sep 2021
Date Written: July 20, 2021
We investigate the labor market effects of a loan guarantee program targeting French SMEs in the midst of the financial crisis. Exploiting worker-level panel data and differences in regional treatment intensity in a border discontinuity design, we find that the program has a significant and persistent positive impact on workers' employment and earnings trajectories, in particular for those initially employed in high-unemployment areas. However, the program dampens workers' reallocation towards productive firms, especially for workers with high earnings capacity. In the aggregate, the program appears to be revenue-positive for the government, as the savings in unemployment benefits outweigh the losses from the defaults of guaranteed loans, and the number of jobs preserved by the program is of comparable magnitude as the number of workers prevented from moving to a more productive firm.
Keywords: Loan Guarantees, Financial Frictions, Labor Market, Employment Trajectory
JEL Classification: G28, G33, H81, J23, J31, J65
Suggested Citation: Suggested Citation