Working Paper: NBER ID: w22846
Authors: Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole
Abstract: How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemployment-insured "formal" jobs at larger firms that pay greater wages. These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities.
Keywords: Consumer Credit; Employment; Entrepreneurship; Bankruptcy; Job Flows
JEL Codes: D04; D1; D12; D14; D22; D31; D83; E2; E21; G23; G3; G33; K35; K36; L22; M5; M52; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Removal of bankruptcy flags (G33) | Increase in credit access (E51) |
| Increase in credit access (E51) | Transition into self-employment (L26) |
| Increase in credit access (E51) | Borrowing amount (G51) |
| Increase in credit access (E51) | Schedule C net income (H24) |
| Removal of bankruptcy flags (G33) | Formal employment (J46) |
| Formal employment (J46) | Annual earnings (J31) |
| Perception of productivity (O49) | Employment outcomes (J68) |