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Local Financial Structure and the Pandemic’s Effect on the Distribution of Employment

Author

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  • Ross Levine
  • Chen Lin
  • Wensi Xie

Abstract

Does the structure of financial systems influence the employment respo0nse to adverse shocks? Using (a) county-industry employment data differentiated by firm size and (b) high-frequency county employment data differentiated by income, we find that employment at small firms, employment of low-income workers, and overall employment fell less in counties with higher proportions of small banks in response to the pandemic. Furthermore, small banks lend more to small businesses than large banks, above and beyond government-guaranteed PPP loans. Evidence suggests that small banks cushioned small firms and low-income workers from the adverse effects of the pandemic. (JEL G21, E24, E32, J21, H12)

Suggested Citation

  • Ross Levine & Chen Lin & Wensi Xie, 2025. "Local Financial Structure and the Pandemic’s Effect on the Distribution of Employment," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 14(3), pages 679-716.
    • Handle: RePEc:oup:rcorpf:v:14:y:2025:i:3:p:679-716.
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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