Local Financial Structure and the Pandemic’s Effect on the Distribution of Employment

Abstract

Abstract Does the structure of financial systems influence the employment respo0nse to adverse shocks? Using (a) county-industry employment data differentiated by firm size and (b) high-frequency county employment data differentiated by income, we find that employment at small firms, employment of low-income workers, and overall employment fell less in counties with higher proportions of small banks in response to the pandemic. Furthermore, small banks lend more to small businesses than large banks, above and beyond government-guaranteed PPP loans. Evidence suggests that small banks cushioned small firms and low-income workers from the adverse effects of the pandemic. (JEL G21, E24, E32, J21, H12) Received: 15 April 2021; Editorial decision: 13 December 2023 Editor: Andrew Ellul Authors have furnished an Internet Appendix,which is available on the Oxford University Press Web site next to the link to the final published paper online.