Employment Effects of Alleviating Financing Frictions : Worker-Level Evidence from a Loan Guarantee Program

We study the employment effects of loan guarantee programs aiming at mitigating financing frictions for small businesses. Exploiting worker-level panel data combined with plausibly exogenous heterogeneity in policy generosity across French regions, we find that such programs have a significant and persistent positive impact on workers' employment and earnings trajectories. The program disproportionately benefits high earnings, male and younger workers, due to differences in retention decisions by the initial employer. We estimate the gross cost to preserve a job(-year) to be around EURO 3,200, and a negative net cost when we include the savings on unemployment benefits