Employment Adjustment and Financial Constraints - Evidence from Firm-level Data

Bäurle, Gregor and Lein, Sarah M. and Steiner, Elizabeth. (2018) Employment Adjustment and Financial Constraints - Evidence from Firm-level Data. WWZ Working Papers, 2018 (07).

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Firms adjust their employment to changes in output. But they tend to adjust it only partially. Typically, labor is hoarded in downturns and subsequently rms have to hire less in upturns. Investment in labor hoarding may therefore be in uenced by factors that impede investments, such as nancial constraints. Using rm-level data, we show that nancial constraints increase the sensitivity of employment to  uctuations in output considerably. When output changes, nancially constrained rms resize their labor force substantially more than rms that have abundant funding. Limited internal funding opportunities turn out to be just as important as the reduced access to external nance. The strongest impact, however, is observed when internal and external constraints occur jointly. In that case, rms lay o two-and-a-half times more employees than unconstrained rms. The amplifying eect of nancial constraints is similar in upturns and downturns, implying that nancially constrained rms not only reduce their workforce more when demand decreases, but they also hire more labor when demand increases.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Makroökonomie (Lein)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Bäurle, Gregor and Lein, Sarah M.
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:52
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Identification Number:
  • handle: RePEc:bsl:wpaper:2018/07
edoc DOI:
Last Modified:08 Mar 2018 11:04
Deposited On:08 Mar 2018 11:04

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