The price of leverage: learning from the effect of LTV constraints on job search and wages

60 Pages Posted: 28 Apr 2021 Last revised: 23 Mar 2023

See all articles by Gazi Kabas

Gazi Kabas

Tilburg University - Department of Finance; University of Zurich - Department Finance; Swiss Finance Institute

Kasper Roszbach

Norges Bank - Research Department; University of Groningen - Faculty of Economics and Business

Date Written: March 23, 2023


Does household leverage matter for workers’ job search, matching in the labor market, and wages? Theoretically, household leverage has been shown to have opposing effects on the labor market through, among others, a debt-overhang and a liquidity constraint channel. To test which channels dominate empirically, we exploit the introduction of a macroprudential borrowing restriction that exogenously reduces household leverage in Norway. We study home-owners who lose their job and find that a reduction in leverage raises wages by 3.3 percentage points after unemployment. The mandated restriction of leverage enables workers to search longer for jobs, and thereby find positions in firms that pay higher wage premia and switch to new occupations and industries. We observe no evidence that a greater use of credit during unemployment drives the extended job
search. The positive effect on wages is persistent and more pronounced for workers who are more likely to benefit from improved job search, such as young people. Our findings contribute to the debate on the costs and benefits of policies that constrain household leverage and show that such policies, while primarily aiming at enhancing financial stability, have other positive effects such as improved labor market outcomes.

Keywords: Household Leverage, Household Debt, Job Displacement, Job Search, Macroprudential Policy.

JEL Classification: E21, G21, G51, J21.

Suggested Citation

Kabas, Gazi and Roszbach, Kasper F., The price of leverage: learning from the effect of LTV constraints on job search and wages (March 23, 2023). Available at SSRN: or

Gazi Kabas (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001

HOME PAGE: http://

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Kasper F. Roszbach

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107

University of Groningen - Faculty of Economics and Business ( email )

Department of Economics, Econometrics and Finance
Nettelbosje 2
Groningen, NL 9747 AE


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