Real Effects of Workers' Financial Distress: Evidence from Teacher Spillovers
43 Pages Posted: 3 Aug 2016 Last revised: 2 Nov 2018
Date Written: October 31, 2018
This paper studies the effects of financial distress on workers' productivity. We use detailed data from the public school system in Texas, which allow us to exploit within-teacher variation and to control for a student's economic environment. We show that student performance decreases by 6.5% following a declaration of bankruptcy by the student's teacher. The effect of financial distress increases with the complexity of the task. Overall, our results suggest a potential feedback effect of worker financial distress on local economic conditions and thus contribute to the understanding of the propagation, and potential amplification, of shocks through a local economy.
Keywords: bankruptcy, labor productivity, economic shocks, feedback effects, education
JEL Classification: J01, J24, G33, I20
Suggested Citation: Suggested Citation