Working Paper: NBER ID: w22436
Authors: Marieke Bos; Emily Breza; Andres Liberman
Abstract: Credit information affects the allocation of consumer credit, but its effects on other markets that are relevant for academic and policy analysis are unknown. This paper measures the effect of negative credit information on the employment and earnings of Swedish individuals at the margins of the formal credit and labor markets. We exploit a policy change that generates quasi-exogenous variation in the retention time of past delinquencies on credit reports and estimate that one additional year of negative credit information causes a reduction in wage earnings of $1,000. In comparison, the decrease in credit is only one-fourth as large. Negative credit information also causes an increase in self-employment and a decrease in mobility. We exploit differences in the information available to employers and banks to show suggestive evidence that this cost of default is borne inefficiently by the relatively more creditworthy individuals among previous defaulters.
Keywords: credit information; employment effects; labor market; credit market
JEL Codes: D12; D14; G21; G23; J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| an additional year of negative credit information (G51) | reduction of wage earnings (J31) |
| removal of negative credit information (G51) | higher probability of employment (J68) |
| removal of negative credit information (G51) | decrease in self-employment (J23) |
| removal of negative credit information (G51) | increase in mobility (J62) |
| negative credit information (G21) | labor market costs of default (J32) |
| negative credit information (G21) | inefficiencies in how credit information is utilized in labor markets (J79) |
| negative credit information (G21) | disproportionate costs borne by creditworthy individuals (G51) |