Working Paper: NBER ID: w22274
Authors: Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole
Abstract: We empirically and theoretically examine how consumer credit access affects displaced workers. Empirically, we link administrative employment histories to credit reports. We show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take .15 to 3 weeks longer to find a job. Conditional on finding a job, they earn more and work at more productive firms. We develop a labor sorting model with credit to provide structural estimates of the impact of credit on employment outcomes, which we find are similar to our empirical estimates. We use the model to understand the impact of consumer credit on the macroeconomy. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low-productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms.
Keywords: Consumer Credit; Job Finding; Labor Market; Unemployment; Economic Recovery
JEL Codes: E13; E2; E24; E32; J01; J21; J24; J31; J6; J63; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Greater access to credit (G21) | Longer nonemployment durations for displaced workers (J65) |
| 10% increase in credit limits (G21) | 1.5 to 3 weeks longer to find a job (J68) |
| Increased credit access (G21) | 10% more of prior annual earnings replaced with personal revolving credit (G51) |
| Higher credit access (G51) | Greater earnings replacement rates (H55) |
| Increased credit access (G21) | More likely to find jobs at larger and more productive firms (J29) |
| Tightened credit limits (E51) | Employment recovers more quickly (J68) |
| Tightened credit limits (E51) | Negative effect on overall productivity and output (D24) |
| Potential to borrow (F34) | Influences job search behavior (J29) |