THE EMPLOYMENT-FINANCING NEXUS - EVIDENCE FROM A PANEL OF WEST-GERMANFIRMS

The objective of the paper is to investigate the linkage between finan cial factors and employment decisions of West German firms. The underl ying model is based upon rational expectations and convex adjustment c osts. The time series, cross-section estimates for the period 1989-199 4 are obtained using information on individual firms contained in busi ness surveys. We find that financial constraints can indeed restrain t he level of employment in small firms. On the contrary, there is no ev idence that this result applies to larger firms as well.