Can Paying Firms Quicker Impact Aggregate Employment?
66 Pages Posted: 1 Jun 2016 Last revised: 2 Feb 2017
Date Written: October 2016
In 2011, the Federal government accelerated payments to their small business contractors, spanning virtually every county and industry in the US. We study the impact of this reform on industry-county employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased nearly 20 cents for each accelerated dollar, with two-thirds of the effect coming from an increase in new hires and the balance from an increase in earnings for new and existing workers. Importantly, however, we find evidence of crowding out in employment growth among non-treated firms, particularly in counties with low rates of unemployment. Our results highlight an important and understudied channel through which financing constraints can be alleviated for small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to a substantially lower net impact on aggregate outcomes.
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