The Employment Consequences of SMEs’ Credit Constraints in the Wake of the Great Recession

45 Pages Posted: 22 Dec 2017

See all articles by David Cornille

David Cornille

National Bank of Belgium

Francois Rycx

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA); IZA Institute of Labor Economics

Ilan Tojerow

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA); IZA Institute of Labor Economics

Date Written: December 21, 2017

Abstract

This article takes advantage of access to confidential matched bank-firm data relative to the Belgian economy to investigate 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 is used as an exogenous determinant of firms’ access to credit. 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. Yet, findings also indicate that employment consequences of credit shortages have been essentially detrimental for SMEs experiencing a negative demand shock or facing severe product market competition. Finally, results show that credit-constrained SMEs adjusted their workforce significantly more at the extensive margin than their non-constrained counterparts, but also that they relied more intensively on temporary layoff schemes.

Keywords: Credit Constraints, Employment, Matched Bank-Firm Data, Belgium, Wage Dynamics Network (WDN)

JEL Classification: D22, G01, G21, J21, J23

Suggested Citation

Cornille, David and Rycx, François and Tojerow, Ilan, The Employment Consequences of SMEs’ Credit Constraints in the Wake of the Great Recession (December 21, 2017). ECB Working Paper No. 2117, Available at SSRN: https://ssrn.com/abstract=3092189 or http://dx.doi.org/10.2139/ssrn.3092189

David Cornille (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

François Rycx

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA) ( email )

Ave. Franklin D Roosevelt, 50
Brussels, B-1050
Belgium
+32 0 2 6504110 (Phone)
+32 0 2 6503825 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ilan Tojerow

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA) ( email )

Ave. Franklin D Roosevelt, 50
Brussels, B-1050
Belgium

HOME PAGE: http://homepages.ulb.ac.be/~itojerow/

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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