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The employment consequences of SMEs’ credit constraints in the wake of the great recession. National Bank of Belgium Working Paper No. 333

Cornille, David and Rycx, Francois and Tojerow, Ilan (2017) The employment consequences of SMEs’ credit constraints in the wake of the great recession. National Bank of Belgium Working Paper No. 333. [Working Paper]

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    Abstract

    This article takes advantage of access to confidential matched bank-firm data relative to the Belgian economy to investigate whether and how employment decisions of small- and medium-sized enterprises (SMEs) have been affected by credit constraints in the wake of the Great Recession. Variability in banks’ financial health following the Great Recession is used as an exogenous determinant of firms’ access to credit. Two-stage least squares and bivariate probit estimates suggest that SMEs borrowing money from pre-crisis less healthy banks were significantly more likely to be affected by a credit constraint and, in turn, to adjust their labour input downwards than pre-crisis clients of more healthy banks. More precisely, estimates show that credit-constrained SMEs were ceteris paribus between 40 and 65% more likely to reduce their workforce than their counterparts not facing such constraints. Yet, findings also indicate that employment consequences of credit shortages depend heavily on the environment in which SMEs operate. Results indeed indicate that credit constraints have been essentially detrimental for employment among SMEs experiencing a negative demand shock or facing severe product market competition. Finally, in terms of adjustment channels, results show that credit-constrained SMEs adjusted their workforce significantly more at the extensive margin (through individual layoffs, reduction of temporary employment and early retirement) than their non-constrained counterparts, but also that they relied more intensively on temporary layoff schemes (for economic reasons).

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    Item Type: Working Paper
    Uncontrolled Keywords: banks’ financial health, credit constraints, employment, Great Recession, matched bank-firm data, Belgium, Wage Dynamics Network (WDN)
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > employment/labour market
    Countries > Belgium
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on/reforms/economic governance
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 31 Oct 2019 15:14
    Number of Pages: 50
    Last Modified: 31 Oct 2019 15:14
    URI: http://aei.pitt.edu/id/eprint/97477

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