Banks, firms, and jobs
Fabio Berton (University of Torino), Sauro Mocetti (Bank of Italy), Andrea F. Presbitero (IMF), Matteo Richiardi (INET)
Abstract: Job disruptions is one of the most visible effects of financial crises and a broad literature shows that credit supply shocks lead to a reduction in employment. We contribute to this literature investigating individual heterogeneity across firms, workers and jobs in the response to a financial shock. We use an extremely rich data set on job contracts in one Italian region, matched with the universe of firms and their lending banks. To isolate the effect of credit supply shocks we build a firm-specific time-varying measure of credit restrictions and we take into account the confounding role of demand and productivity shocks saturating the model with fixed effects. Our findings indicate that a credit supply contraction reduces employment and the effect is economically large. The impact of the credit crunch is concentrated in fixed-term contracts and in services and it is stronger in more leveraged firms, foreign citizens, women and less educated workers.