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Financing constraints and unemployment: evidence from the Great Recession

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This paper exploits the differential financing needs across industrial sectors and provides strong empirical evidence that financing constraints of small businesses are important in explaining the unemployment dynamics around the Great Recession. In particular, we show that workers in small firms are more likely to become unemployed during the 2007-2009 financial crisis if they work in industries with high external financing needs. According to our estimates, eliminating financial constraints of small firms could add up to 850,000 jobs to the economy. We suggest that policies aimed at making credit available to small businesses would significantly help stabilize the labor markets and economic activity in the U.S.

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  • Burcu Duygan-Bump & Alexey Levkov & Judit Montoriol-Garriga, 2010. "Financing constraints and unemployment: evidence from the Great Recession," Supervisory Research and Analysis Working Papers QAU10-6, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbqu:qau10-6
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    More about this item

    Keywords

    Unemployment; small business finance; Recessions; Financial crises - United States;
    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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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