Firm Leverage, Consumer Demand, and Employment Losses during the Great Recession
Name
Giroud_Firm leverage.pdf
Size
438.82 KB
Format
Adobe PDF
Checksum (MD5)
1257be542a9319e4613261ab217213aa
Author(s)
Mueller, Holger M.
Giroud, Xavier Alexandre
Date Issued
October 2016
Journal
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
Abstract
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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1093/qje/qjw035
