The Long Run Earnings Effects of a Credit Market Disruption

48 Pages Posted: 4 May 2020

Abstract

This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly aected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favorable labor market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavorable labor market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent eects on the earnings distribution.

Keywords: credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data

JEL Classification: E24, E44, G21, J21, J31, J63

Suggested Citation

Adamopoulou, Effrosyni and de Philippis, Marta and Sette, Enrico and Viviano, Eliana, The Long Run Earnings Effects of a Credit Market Disruption. IZA Discussion Paper No. 13185, Available at SSRN: https://ssrn.com/abstract=3590883

Effrosyni Adamopoulou (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Marta De Philippis

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Eliana Viviano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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