Employment Effects of Alleviating Financing Frictions: Worker-Level Evidence from a Loan Guarantee Program

60 Pages Posted: 27 Jun 2019 Last revised: 1 Apr 2021

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris

Thorsten Martin

Bocconi University; IGIER - Innocenzo Gasparini Institute for Economic Research

Julien Sauvagnat

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

Boris Vallee

Harvard Business School - Finance Unit

Date Written: June 24, 2019

Abstract

We investigate whether loan guarantee programs mitigate the effect of financing frictions on employment outcomes. Exploiting worker-level panel data combined with plausibly exogenous heterogeneity in treatment intensity across French regions, we find that such programs have a significant and persistent positive impact on workers' employment and earnings trajectories. The program benefits particularly high-wage workers, mostly due to differences in retention decisions by the initial employer. We find that the program was revenue-positive for the government, as the savings in unemployment benefits outweigh the losses from the defaults of guaranteed loans. However, by fixing workers in their jobs, the program dampens reallocation towards more productive firms.

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

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

Suggested Citation

Barrot, Jean-Noel and Martin, Thorsten and Sauvagnat, Julien and Vallee, Boris, Employment Effects of Alleviating Financing Frictions: Worker-Level Evidence from a Loan Guarantee Program (June 24, 2019). 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

Thorsten Martin

Bocconi University ( email )

Via Roentgen 1
Milan, 20136
Italy

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

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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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