Access to finance and labor market performance in the EU 28

This paper examines the relationship between access to finance and labor market performance in the EU28 for the period 2003-2017. For this purpose, we first construct a composite indicator to measure access to finance by equal-weighting information about days needed to be paid, rejected loans, the willingness of banks to provide a loan, interest rate for small loans, venture capital, private equity, business angels, and public funding. Secondly, using a Two-Stage Least Squares (2SLS), we estimate the relationship between the employment and unemployment growth rates on our access to finance indicator while controlling for main macro-economic variables. Our results suggest that improved access to finance is likely to stimulate labor market performance - increased access to finance generates increased employment growth rates, and decreased unemployment growth rates respectively. Findings contribute to empirical literature and have important policy implications. Improving business environment conditions for SMEs through access to finance could improve labor market outcomes.JRC.I.1-Monitoring, Indicators & Impact Evaluatio