Effects of a Credit Crunch on Employment by Sector in the U.S.: How have Recessions Associated with Credit Crunches Differed from Other Recessions?

Economists debate how important credit availability is to sustaining real economic growth. Episodes of financial instability and tight credit create a “credit crunch.” This paper investigates the effects of a credit crunch on employment in broad sectors of the U.S. economy. Monthly employment data is used to compare changes in employment by sector during recessions associated with a credit crunch and recessions not associated with a credit crunch. The results suggest that there is not a significant difference in how employment is affected in these broad sectors. The evidence supports the idea of a financial business cycle