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Do Credit Supply Shocks Constrain Employment Growth of Small and Medium-Sized Enterprises?

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Abstract

Small and medium-sized enterprises (SMEs) made outsized contributions to net employment growth during the pandemic recession and recovery. However, credit conditions have tightened significantly during the past year and might hinder growth for small firms going forward. Using data on bank lending to small businesses and employment growth, we estimate that a tightening in bank credit supply of 1 percentage point is associated with an 11 percent decline in SMEs' net job creation rate. This estimate indicates that a bank credit tightening about one-third the size of the tightening observed during the Great Recession would reduce overall net job creation by approximately 285,000 jobs between March 2023 and March 2024.

Suggested Citation

  • Salomé Baslandze & Camelia Minoiu & Veronika Penciakova & Jonathan L. Willis, 2023. "Do Credit Supply Shocks Constrain Employment Growth of Small and Medium-Sized Enterprises?," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2023(5), September.
    • Handle: RePEc:fip:a00068:96910
    DOI: 10.29338/ph2023-5
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    References listed on IDEAS

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    More about this item

    Keywords

    small and medium-sized enterprises; employment; credit supply; bank lending;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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