No. 1097 - Banks, firms, and jobs

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by Fabio Berton, Sauro Mocetti, Andrea F. Presbitero and Matteo RichiardiFebruary 2017

Unemployment is one of the most visible effects of financial crises. We contribute to the empirical literature on the employment effects of a decline in bank credit, investigating individual heterogeneity across firms, workers and jobs in response to a financial shock. We use a rich data set of over 1.5 million individual job contracts in an Italian region, which is matched with the universe of firms and their lending banks. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. Our findings indicate that a 10 percent supply-driven credit contraction reduces employment by 2.5 percent. The effect is mostly concentrated among relatively less-educated and less-skilled workers with temporary contracts, and is consistent with the presence of a “dual” labor market and a skill-upgrade strategy adopted by firms in response to the financial shock.

Published in 2018 in: Review of Financial Studies, v.31, 6, pp. 2113-2156

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