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Credit shocks, employment protection, and growth:firm-level evidence from spain
Laeven,Luc McAdam,Peter Popov,Alexander
Laeven,Luc
McAdam,Peter
Popov,Alexander
Abstract
We exploit a provision in Spanish labor laws whereby employment protection is more stringent for firms with 50+ employees. Firm-level evidence suggests that during the credit crunch of 2008-09, healthy firms with less than 50 employees borrowing from troubled banks grew faster in sectors where production factors were sufficiently substitutable. This effect is made possible by firms’ substituting labor for capital when the rental cost of capital increases. Our analysis sheds new light on the importance of labor regulation and the technological substitutability of the factors of production in enabling firms to adjust to financial shocks.
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Date
2023-07
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Keywords
Capital-labor substitution, Credit crunch, Employment protection, Firm growth, G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages, J80 - General, D20 - General, SDG 8 - Decent Work and Economic Growth, SDG 1 - No Poverty
Citation
Laeven, L, McAdam, P & Popov, A 2023, 'Credit shocks, employment protection, and growth:firm-level evidence from spain', Journal of Banking & Finance, vol. 152, 106850. https://doi.org/10.1016/j.jbankfin.2023.106850
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info:eu-repo/semantics/openAccess