2013) When credit dries up: Job Losses in the Great Recession, Working paper

The Great Recession has renewed interest in the real effects of credit supply shocks. In this paper we use a unique dataset to estimate job losses from credit constraints in Spain by exploiting differences in bank’s health at the onset of the crisis. Due to solvency problems, many banks in Spain have been bailed out during the Great Recession. We show that these banks reduced credit supply more than the other banks and, to analyze the implications for employment, we compare employment changes from 2006 to 2010 at two groups of firms: those that obtained a significant share of their funding from weak banks and those receiving it from healthier banks. Our most conservative estimates imply that, once selection biases are controled for, firms attached to weak banks suffered an additional fall in employment between 3 and 6 percentage points, which represents a 15 % to 33 % higher reduction