Firm Leverage and Unemployment during the Great Recession / Xavier Giroud, Holger M. Mueller.

Format:

Book

Author/Creator:

Giroud, Xavier.

Contributor:

National Bureau of Economic Research.

Mueller, Holger M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21076.

NBER working paper series no. w21076

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We argue that firms' balance sheets were instrumental in the propagation of shocks during the Great Recession. Using establishment-level data, we show that firms that tightened their debt capacity in the run-up to the Great Recession ("highleverage firms") exhibit a significantly larger decline in employment in response to household demand shocks than firms that freed up debt capacity ("low-leverage firms"). In fact, all of the job losses associated with falling house prices during the Great Recession are concentrated among establishments of high-leverage firms. At the county level, we show that counties with a larger fraction of establishments belonging to high-leverage firms exhibit a significantly larger decline in employment in response to household demand shocks. Thus, firms' balance sheets also matter for aggregate employment.

Notes:

Print version record

April 2015.