Real Estate Collateral and Labor Demand

This paper shows that the availability of real estate collateral a↵ects labor demand. We regress firm-level labor 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 labor demand of firms. Aggregate e↵ects are sizable. During the 20022006 real estate price run-up, we find that some 10% 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 e↵ect of collateral on investment and stable labor-capital complementarity. This suggests either (1) large adjustment costs on labor or (2) the adoption by firms of labor-saving technologies during the period.