Banks, Firms, and Jobs

We analyze the heterogeneous employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock, we construct a firm-specific time-varying measure of credit supply. The preferred estimate indicates that the average elasticity of employment to a credit supply shock is |$0.36$|⁠. Adjustment affects both the extensive and the intensive margins and is concentrated among workers with temporary contracts. We also examine the heterogeneous effects of the credit crunch by education, age, gender and nationality. Received January 27, 2017; editorial decision December 1, 2017 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.