Firm Leverage, Consumer Demand, and Employment Losses during the Great Recession
Author(s)
Mueller, Holger M.; Giroud, Xavier Alexandre
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This article argues that firms’ balance sheets were instrumental in the transmission of consumer demand shocks during the Great Recession. Using micro-level data from the U.S. Census Bureau, we find that establishments of more highly levered firms experienced significantly larger employment losses in response to declines in local consumer demand. These results are not driven by firms being less productive, having expanded too much prior to the Great Recession, or being generally more sensitive to fluctuations in either aggregate employment or house prices. Likewise, at the county level, we find that counties with more highly levered firms experienced significantly larger declines in employment in response to local consumer demand shocks. Accordingly, firms’ balance sheets also matter for aggregate employment. Our results suggest a possible role for employment policies that target firms directly besides conventional stimulus. JEL Codes: E24, E32, G32, J21, J23, R31.
Date issued
2016-10Department
Sloan School of ManagementJournal
The Quarterly Journal of Economics
Publisher
Oxford University Press
Citation
Giroud, Xavier and Mueller, Holger M. “Firm Leverage, Consumer Demand, and Employment Losses During the Great Recession.” The Quarterly Journal of Economics (November 2016): qjw035. © 2016 The Author(s)
Version: Author's final manuscript
ISSN
0033-5533
1531-4650