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The credit crunch and fall in employment during the Great Recession

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  • Haltenhof, Samuel
  • Jung Lee, Seung
  • Stebunovs, Viktors

Abstract

We study how a bank credit crunch—a dramatic worsening of firm and consumer access to bank credit, such as the one observed over the Great Recession—translates into job losses in U.S. manufacturing industries. To identify the impact of the recent credit crunch, we rely on differences in the degree of dependence on external finance and of tangibility of assets across manufacturing industries and in the sensitivity of these industries׳ output to changes in the supply of consumer credit. We find that, for employment, household access to bank loans matters more than firm access to bank loans. In addition, we show that, over the recent financial crisis, tightening access to commercial and industrial loans and, in particular, consumer installment loans may have contributed significantly to the drop in employment in the manufacturing sector.

Suggested Citation

  • Haltenhof, Samuel & Jung Lee, Seung & Stebunovs, Viktors, 2014. "The credit crunch and fall in employment during the Great Recession," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 31-57.
  • Handle: RePEc:eee:dyncon:v:43:y:2014:i:c:p:31-57
    DOI: 10.1016/j.jedc.2014.03.013
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    Cited by:

    1. Emin Dinlersoz & Henry Hyatt & Hubert Janicki, 2019. "Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 244-266, October.
    2. repec:bis:bisbps:95 is not listed on IDEAS
    3. repec:cen:wpaper:15-08 is not listed on IDEAS
    4. Giacomo Domini & Daniele Moschella, 2018. "Reallocation and productivity during the Great Recession:evidence from French manufacturing firms," LEM Papers Series 2018/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    5. Branch, William A. & Petrosky-Nadeau, Nicolas & Rocheteau, Guillaume, 2016. "Financial frictions, the housing market, and unemployment," Journal of Economic Theory, Elsevier, vol. 164(C), pages 101-135.
    6. Daniel Garcia, 2018. "Employment in the Great Recession : How Important Were Household Credit Supply Shocks?," Finance and Economics Discussion Series 2018-074, Board of Governors of the Federal Reserve System (US).
    7. Dirk Bezemer & Maria Grydaki & Lu Zhang, 2016. "More Mortgages, Lower Growth?," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 652-674, January.
    8. repec:oup:rfinst:v:31:y:2018:i:6:p:2113-2156. is not listed on IDEAS
    9. Lee, Seung Jung & Stebunovs, Viktors, 2016. "Bank capital pressures, loan substitutability, and nonfinancial employment," Journal of Economics and Business, Elsevier, vol. 83(C), pages 44-69.
    10. Philippe BACCHETTA & Ouarda MERROUCHE, 2015. "Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009," Swiss Finance Institute Research Paper Series 15-63, Swiss Finance Institute.
    11. Stephan Luck & Thomas Zimmermann, 2018. "Employment Effects of Unconventional Monetary Policy : Evidence from QE," Finance and Economics Discussion Series 2018-071, Board of Governors of the Federal Reserve System (US).
    12. Beck, Thorsten & Colciago, Andrea & Pfajfar, Damjan, 2014. "The role of financial intermediaries in monetary policy transmission," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 1-11.
    13. Marco Guerrazzi, 2015. "Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(3), pages 343-358.
    14. Alan Finkelstein Shapiro & Maria Olivero, 2018. "Lending Relationships and Labor Market Dynamics," 2018 Meeting Papers 1113, Society for Economic Dynamics.
    15. Sophia Chen & Lev Ratnovski & Pi-Han Tsai, 2017. "Credit and Fiscal Multipliers in China," IMF Working Papers 17/273, International Monetary Fund.
    16. Fabio Berton & Sauro Mocetti & Andrea F. Presbitero & Matteo Richiardi, 2018. "Banks, Firms, and Jobs," Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2113-2156.
    17. Ralf R. Meisenzahl, 2016. "Can Financing Constraints Explain the Evolution of the Firm Size Distribution?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(2), pages 123-147, March.
    18. Bassett, William F. & Lee, Seung Jung & Spiller, Thomas Popeck, 2015. "Estimating changes in supervisory standards and their economic effects," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 21-43.
    19. repec:oup:rcorpf:v:4:y:2015:i:2:p:155-205. is not listed on IDEAS
    20. repec:eco:journ3:2018-06-8 is not listed on IDEAS

    More about this item

    Keywords

    Bank credit; Credit crunch; Job losses; Great Recession; Senior Loan Officer Opinion Survey;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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