The Labor Market Effects of Credit Market Information

47 Pages Posted: 25 Jul 2016 Last revised: 22 Apr 2022

See all articles by Marieke Bos

Marieke Bos

Swedish House of Finance - Stockholm School of Economics; Vrije Universiteit Amsterdam; Consumer Finance Institute, Federal Reserve Bank of Philadelphia; Tinbergen Institute

Emily Breza

Columbia University - Columbia Business School, Finance; Columbia University - Columbia Business School, Finance

Andres Liberman

Betterfly

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Date Written: July 2016

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.

Suggested Citation

Bos, Marieke and Breza, Emily and Breza, Emily and Liberman, Andres, The Labor Market Effects of Credit Market Information (July 2016). NBER Working Paper No. w22436, Available at SSRN: https://ssrn.com/abstract=2813884

Marieke Bos (Contact Author)

Swedish House of Finance - Stockholm School of Economics ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

HOME PAGE: http://www.mariekebos.org

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Consumer Finance Institute, Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Emily Breza

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Andres Liberman

Betterfly ( email )

Santiago
Chile

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