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The Labor Market Effects of Loan Guarantee Programs

Author

Listed:
  • Jean-Noël Barrot
  • Thorsten Martin
  • Julien Sauvagnat
  • Boris Vallée

Abstract

We investigate the labor market effects of a loan guarantee program targeting French SMEs during the financial crisis. Exploiting differences in regional treatment intensity in a border discontinuity design, we uncover a central trade-off for such interventions. While the program has a positive impact on workers’ employment and earnings trajectories that translates into positive aggregate employment effects, it dampens the worker reallocation toward more productive firms that happens following recessions, and particularly so for high-skill workers. This labor allocation effect is economically significant and translates into a reduction in aggregate productivity.

Suggested Citation

  • Jean-Noël Barrot & Thorsten Martin & Julien Sauvagnat & Boris Vallée, 2024. "The Labor Market Effects of Loan Guarantee Programs," The Review of Financial Studies, Society for Financial Studies, vol. 37(8), pages 2315-2354.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:8:p:2315-2354.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae014
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    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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