How does easing liquidity constraints affect aggregate employment?

We measure the impact of removing liquidity constraints on aggregate employment by focusing on a sudden and unexpected large liquidity injection to Spanish firms in early 2012, when the Spanish central government paid all invoices of firms to regional and municipal governments that were in arrears. We identify the effect on employment from the cross-sectional variation in the size of the liquidity injection received by Spanish municipalities. Our preliminary finding sindicate that labor market responses can be detected both in the municipality where the liquidity injection occurs and in the municipality where firms are headquartered. We find evidence that the effect on unemployment is stronger where the liquidity injection originates whereas the effect on employment is stronger where the firms are located.