Real Effects of Financial Distress of Workers: Evidence from Teacher Spillovers
39 Pages Posted: 3 Aug 2016 Last revised: 25 May 2017
Date Written: May 25, 2017
This paper studies the effects of financial distress on the productivity of workers. Using detailed data from the public school system in Texas, which allows us to exploit within-teacher variation and to control for a student's economic environment, we show that student performance decreases by 1.7% following a declaration of bankruptcy by their teacher. The effect of financial distress increases with the complexity of the task: Students designated as "at-risk" experience a 5.7% decrease in performance after their teacher files for bankruptcy. Our results indicate that the financial distress of workers can have important consequences for the economy.
Keywords: Bankruptcy, Labor, Worker Productivity, Education
JEL Classification: J01, I20, D10
Suggested Citation: Suggested Citation