Bank Competition, Local Labor Markets, and the Racial Employment Gap

This paper shows that a decrease in bank competition negatively affects local labor markets. Using bank mergers and anti-trust policy to obtain quasi-exogenous variation, I find that a 5% increase in county level bank concentration leads to a 6% decrease in small business lending, followed by a 0.4% drop in local employment and 1.4% decline in wages. These findings are stronger for areas with a larger fraction of black population. This race differential cannot be explained by differences in income or economic growth, but is consistent with theories predicting increase in lending discrimination following a drop in competitive pressures