Household Liquidity Constraints and Labor Market Outcomes: Evidence from a Danish Mortgage Reform

83 Pages Posted: 13 Nov 2019 Last revised: 22 Apr 2022

See all articles by Alex Xi He

Alex Xi He

University of Maryland - Robert H. Smith School of Business

Daniel le Maire

University of Copenhagen

Date Written: October 13, 2021

Abstract

We study the causal effect of liquidity constraints on individual labor market outcomes by exploiting the 1992 mortgage reform in Denmark, which for the first time allowed homeowners to borrow against housing equity for non-housing purposes. Following the reform, liquidity-constrained homeowners increased debt levels and had higher earnings growth and lower employment rates. The option to borrow against housing equity enabled liquidity-constrained individuals to move to high-wage jobs and invest in valuable human and physical capital. The results imply that relaxing household liquidity constraints during recessions can create better job matches and potentially increase earnings and output in the longer run.

JEL Classification: G21, E44, E24, J60, D14, R20

Suggested Citation

He, Alex Xi and le Maire, Daniel, Household Liquidity Constraints and Labor Market Outcomes: Evidence from a Danish Mortgage Reform (October 13, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3481279 or http://dx.doi.org/10.2139/ssrn.3481279

Alex Xi He (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

HOME PAGE: http://www.alexxihe.com/

Daniel Le Maire

University of Copenhagen ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
325
Abstract Views
1,420
rank
137,376
PlumX Metrics