Household Debt and Labour Supply

51 Pages Posted: 5 Oct 2021

See all articles by Philip Bunn

Philip Bunn

Bank of England

Jagjit Chadha

National Institute of Economic and Social Research

Thomas Lazarowicz

University College London

Stephen Millard

Bank of England

Emma Rockall

Stanford University; Stanford University - Department of Economics

Date Written: September 24, 2021

Abstract

In this paper, we first develop a theoretical framework with three types of household: outright homeowners, mortgagors and renters. We then examine empirically how household debt affects the response of labour supply to shocks to income, mortgage interest rates and house prices for each type of household. In line with our framework, we find that negative income shocks lead to lower participation among outright homeowners while increasing mortgagors’ desired hours; surprise rises in interest rates lead to increases in desired hours that are larger the higher is the household’s debt level; and falls in house prices increase mortgagors’ desired hours.

Keywords: Household debt, housing, labour supply, participation, hours worked

JEL Classification: D1, E21, J22

Suggested Citation

Bunn, Philip and Chadha, Jagjit and Lazarowicz, Thomas and Millard, Stephen and Rockall, Emma, Household Debt and Labour Supply (September 24, 2021). Bank of England Working Paper No. 941, Available at SSRN: https://ssrn.com/abstract=3936001 or http://dx.doi.org/10.2139/ssrn.3936001

Philip Bunn

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Jagjit Chadha

National Institute of Economic and Social Research ( email )

2 Dean Trench Street
Smith Square
London, SW1P 3HE
United Kingdom

Thomas Lazarowicz

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Stephen Millard (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Emma Rockall

Stanford University ( email )

Stanford, CA 94305
United States

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

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