We estimate the effect of an increase in the availability of bank credit on the employment and the earnings of high- and low-skilled workers by considering a bankruptcy reform that
We estimate the effect of an increase in the availability of bank credit on the employment and the earnings of high- and low-skilled workers by considering a bankruptcy reform that increased the legal protection of secured creditors and led to an expansion in bank credit to Brazilian firms. We use detailed administrative data and an empirical strategy that compares changes in outcomes for financially constrained firms, which were affected by the bankruptcy reform, with unconstrained firms, which were largely unaffected by the reform. Following the bankruptcy reform and subsequent expansion in credit, constrained firms increased their hiring of high-skilled workers, but not of low-skilled workers. We also observe an increase in earnings, especially for skilled workers and for workers who were matched with constrained firms prior to the reform. We conclude by showing that our results are consistent with a model in which heterogeneous producers face constraints in their ability to borrow and have production functions featuring capital-skill complementarity. Translating our firm-level estimates into changes in aggregate productivity, we find that the reallocation of resources induced by the bankruptcy reform accounts for 36 percent of the observed increase in productivity in Brazil during the 2000’s.
(Tuesday) 12:00 pm - 1:15 pm
Bendheim Center for Finance Room 101