The Labor Market Effects of Loan Guarantee Programs

63 Pages Posted: 27 Jun 2019 Last revised: 28 Sep 2021

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris; HEC Paris

Thorsten Martin

Bocconi University; IGIER - Innocenzo Gasparini Institute for Economic Research

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Boris Vallee

Harvard Business School - Finance Unit

Date Written: July 20, 2021

Abstract

We investigate the labor market effects of a loan guarantee program targeting French SMEs in the midst of the financial crisis. Exploiting worker-level panel data and differences in regional treatment intensity in a border discontinuity design, we find that the program has a significant and persistent positive impact on workers' employment and earnings trajectories, in particular for those initially employed in high-unemployment areas. However, the program dampens workers' reallocation towards productive firms, especially for workers with high earnings capacity. In the aggregate, the program appears to be revenue-positive for the government, as the savings in unemployment benefits outweigh the losses from the defaults of guaranteed loans, and the number of jobs preserved by the program is of comparable magnitude as the number of workers prevented from moving to a more productive firm.

Keywords: Loan Guarantees, Financial Frictions, Labor Market, Employment Trajectory

JEL Classification: G28, G33, H81, J23, J31, J65

Suggested Citation

Barrot, Jean-Noel and Barrot, Jean-Noel and Martin, Thorsten and Sauvagnat, Julien and Vallee, Boris, The Labor Market Effects of Loan Guarantee Programs (July 20, 2021). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3409349 or http://dx.doi.org/10.2139/ssrn.3409349

Jean-Noel Barrot

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Thorsten Martin

Bocconi University ( email )

Via Roentgen 1
Milan, 20136
Italy

HOME PAGE: http://https://sites.google.com/view/thorstenmartin

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Boris Vallee (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States

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