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Employment Adjustment and Financial Constraints - Evidence from Firm-level Data

Author

Listed:
  • Bäurle, Gregor

    () (University of Basel)

  • Lein, Sarah M.

    () (University of Basel)

  • Steiner, Elizabeth

Abstract

Firms adjust their employment to changes in output. But they tend to adjust it only partially. Typically, labor is hoarded in downturns and subsequently rms have to hire less in upturns. Investment in labor hoarding may therefore be in uenced by factors that impede investments, such as nancial constraints. Using rm-level data, we show that nancial constraints increase the sensitivity of employment to uctuations in output considerably. When output changes, nancially constrained rms resize their labor force substantially more than rms that have abundant funding. Limited internal funding opportunities turn out to be just as important as the reduced access to external nance. The strongest impact, however, is observed when internal and external constraints occur jointly. In that case, rms lay o two-and-a-half times more employees than unconstrained rms. The amplifying eect of nancial constraints is similar in upturns and downturns, implying that nancially constrained rms not only reduce their workforce more when demand decreases, but they also hire more labor when demand increases.

Suggested Citation

  • Bäurle, Gregor & Lein, Sarah M. & Steiner, Elizabeth, 2018. "Employment Adjustment and Financial Constraints - Evidence from Firm-level Data," Working papers 2018/07, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2018/07
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial constraints; employment; labor hoarding;

    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

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