The causal effect of restrictive bank lending on employment growth: A matching approach

Abstract

Does restrictive bank lending cause lower employment growth at the firm-level or does it reflect firm characteristics that drive the deterioration of employment figures? Applying propensity score matching, we estimate the treatment effect of restrictive bank lending on employment growth. Combining balance sheet information and survey data on a firm's current and expected future business situation, we rule out the impact of firm heterogeneity. We find that credit constraints have a significant negative effect on employment growth. Restricted firms also apply for short-time work more often, but this effect is small and not significant in all estimations