NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Can Paying Firms Quicker Affect Aggregate Employment?

Jean-Noel Barrot, Ramana Nanda

NBER Working Paper No. 22420
Issued in July 2016
NBER Program(s):Corporate Finance, Labor Studies, Public Economics, Productivity, Innovation, and Entrepreneurship

In 2011, the federal government accelerated payments to their small business contractors, spanning virtually every county and industry in the US. We study the impact of this reform on county-sector employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased 10 cents for each accelerated dollar, with two-thirds of the effect coming from an increase in new hires and the balance from an increase in earnings. Importantly, however, we document substantial crowding out of non-treated firms employment, particularly in counties with low rates of unemployment. Our results highlight an important channel through which financing constraints can be alleviated for small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to a substantially lower net impact on aggregate outcomes.

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Document Object Identifier (DOI): 10.3386/w22420

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