Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

108 Pages Posted: 20 Oct 2016 Last revised: 22 Aug 2019

See all articles by Will Dobbie

Will Dobbie

Princeton University

Paul Goldsmith-Pinkham

Federal Reserve Banks - Federal Reserve Bank of New York

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Jae Song

U.S. Social Security Administration

Multiple version iconThere are 3 versions of this paper

Date Written: August 19, 2019

Abstract

We study the financial and labor market impacts of bad credit reports. Using difference-in-differences variation from the staggered removal of bankruptcy flags, we show that bankruptcy flag removal leads to economically large increases in credit limits and borrowing. Using administrative tax records linked to personal bankruptcy records, we estimate economically small effects of flag removal on employment and earnings outcomes. We rationalize these contrasting results by showing that, conditional on basic observables, “hidden” bankruptcy flags are strongly correlated with adverse credit market outcomes but have no predictive power for measures of job performance.

Keywords: consumer finance, bankruptcy, employment

JEL Classification: D14, G0, J0

Suggested Citation

Dobbie, Will and Goldsmith-Pinkham, Paul and Mahoney, Neale and Song, Jae, Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports (August 19, 2019). FRB of NY Staff Report No. 795; Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2856257

Will Dobbie (Contact Author)

Princeton University ( email )

Paul Goldsmith-Pinkham

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Neale Mahoney

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jae Song

U.S. Social Security Administration ( email )

Washington, DC 20254
United States
202-358-6403 (Phone)
202-358-6192 (Fax)

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