How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output

47 Pages Posted: 24 May 2016

See all articles by Kyle Herkenhoff

Kyle Herkenhoff

University of Minnesota - Minneapolis

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Ethan Cohen-Cole

Econ One Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 2016

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.

Suggested Citation

Herkenhoff, Kyle and Phillips, Gordon M. and Cohen-Cole, Ethan, How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output (May 2016). NBER Working Paper No. w22274. Available at SSRN: https://ssrn.com/abstract=2783188

Kyle Herkenhoff (Contact Author)

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Gordon M. Phillips

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ethan Cohen-Cole

Econ One Research ( email )

United States

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