Finance and Economics Discussion Series (FEDS)
November 2014
Financing Constraints and Unemployment: Evidence from the Great Recession
Burcu Duygan-Bump, Alexey Levkov, and Judit Montoriol-Garriga
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
PDF: Full Paper