Financing Constraints and Unemployment: Evidence from the Great Recession

55 Pages Posted: 22 Nov 2014

See all articles by Burcu Duygan-Bump

Burcu Duygan-Bump

Board of Governors of the Federal Reserve System

Alexey Levkov

Federal Reserve Banks - Federal Reserve Bank of Boston

Judit Montoriol-Garriga

La Caixa

Date Written: October 22, 2014

Abstract

Exploiting the differential financing needs across industrial sectors, this paper shows that financing constraints of small businesses in the United States are one of the drivers explaining the unemployment dynamics during the Great Recession. We show that workers in small firms are more likely to become unemployed during the 2007-09 financial crisis if they work in industries with high external financing needs. We find very similar results for the 1990-91 recession, but not for the 2001 recession, where only the former was associated with a reduction in loan supply. These findings further support the credit constraints hypothesis.

Keywords: Great recession, firm size, financial dependence, unemployment

JEL Classification: E24, E44, G20

Suggested Citation

Duygan-Bump, Burcu and Levkov, Alexey and Montoriol-Garriga, Judit, Financing Constraints and Unemployment: Evidence from the Great Recession (October 22, 2014). FEDS Working Paper No. 2014-92, Available at SSRN: https://ssrn.com/abstract=2529180 or http://dx.doi.org/10.2139/ssrn.2529180

Burcu Duygan-Bump (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
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2029124663 (Phone)

Alexey Levkov

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Judit Montoriol-Garriga

La Caixa ( email )

Av Diagonal 629
Barcelona, 08028
Spain

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