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
Date Written: June 24, 2019
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
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