This paper shows that the availability of real estate collateral affects labour demand. We regress firm-level labour demand on the value of their real estate holdings. We use a large administrative dataset of French firms, which has the advantage of including small, unlisted firms, and of providing reliable information on employment and real estate holdings. We find that collateral shocks have a strong and statistically significant impact on the labour demand of firms. Aggregate effects are sizable. During the 2002-2006 real estate price run-up, we find that some 10 per cent of aggregate job growth in France was due to increased availability of real estate collateral to firms. We find, however, that the response of employment to collateral shocks is smaller than what would be expected given the effect of collateral on investment and stable labour-capital complementarity. This suggests either (1) large adjustment costs on labour or (2) the adoption by firms of labour-saving technologies during the period.
David Thesmar holds a PhD in Economics from Ecole des Hautes Etudes en Sciences Sociales (EHESS). Before joining HEC Paris, he was eurozone forecast manager for the ministry of finance and researcher at INSEE, the French statistical office. He has taught corporate finance at ENSAE, Ecole Normale, Ecole Polytechnique and the London School of Economics. His research interests include behavioural finance, financial intermediation, real effects of finance, corporate governance and firm organisation.