Lender of Last Resort and Local Economic Outcomes

This paper studies the long-run labor market consequences of lender-of-last-resort (LLR) intervention during the Great Depression. I exploit a natural experiment created by the Federal Reserve district border separating counties under the jurisdiction of the Atlanta and St. Louis Federal Reserve Banks. During the banking panic of 1930, the Atlanta Fed aggressively extended liquidity to distressed banks, while the St. Louis Fed largely refrained from intervention. Using newly digitized county-level manufacturing data and linked individual-level census records from 1930 and 1940, I examine how exposure to this liquidity support affected local economic activity and worker outcomes. Counties within the Atlanta district experienced fewer bank failures and stronger manufacturing performance in the early 1930s. These differences translated into persistent labor market effects: individuals in treated counties were more likely to remain in manufacturing employment and less likely to migrate across state lines by 1940. The results suggest that financial stabilization policies can shape the long-run allocation of labor across regions and sectors.